Banks, miners lead European shares higher by midday

European shares advanced on Friday as commodities stocks tracked a rise in crude and metals prices, while banks gathered strength on talks about a possible sale of U.S. investment bank Lehman Brothers.

By 1135 GMT, the FTSEurofirst 300 index of top European shares was up 0.9% at 1,151.28 points, after falling 0.65% in the previous session. The benchmark is down 24% so far this year.

Banks were one of the top weighted gainers on the index, with Societe Generale rising 1.8%, BNP Paribas gaining 2%, Dexia rising 2.3% and Credit Agricole advancing 2.6%.

"There is a lot of optimism in the market. It's mainly because of hopes that Lehman Brothers could be rescued. That's driving the market at the moment," said Sejal Patel, a dealer at CMC Markets.

"It's quite positive that somebody is willing to take it on and that gives hope to the rest of the sector. People are coming in and putting some money back into the market," she said.

Expectations that a deal will emerge to save Lehman mounted after its plunging share price prompted intensive talks with U.S. officials about rescue options.

The bank wrote down $5.6 bln for the third quarter, dragging it to a record quarterly loss of $3.9 bln, and has failed to attract investors to shore up its capital position.

Bank of America Corp (BofA) is seen as the most likely suitor for the 158-year-old firm, according to various reports and analysts. BofA declined to comment.

"There are persistent rumours of an offer waiting in the wings for the bank. Investors are also hunting for bargains," said Tom Hougaard, chief market strategist at City Index.

Deutsche Postbank rose 3.3% after Deutsche Post's supervisory board agreed on Friday to sell a stake in the group to Deutsche Bank, sources with direct knowledge of the matter told Reuters.

Britain's FTSE rose 1%, Germany's DAX gained 0.4% and France's CAC was up 1.1%.