Banks lead Europe stocks higher; BoE, ECB eyed

European shares rose early on Thursday, extending a winning streak to seven days, with banks taking the lead as investors awaited Bank of England and ECB interest rate and policy decisions.

By 0711 GMT, the pan-European FTSEurofirst 300 index of top shares was up 1.2 percent at 868.87 points.

At 1100 GMT the BoE is expected to leave rates at a record low. The ECB at 1145 GMT is widely anticipated to cut interest rates to 1.0 percent with attention turning to what additional steps, such as quantiatitive easing, they could take to fight the recession.

"There is talk about the ECB not wanting to go to zero and talking about alternative easing methods. But, it strikes me that the most efficent way to ease is to cut rates. The ECB should not be talking about alternatives really until they are down at zero. It is a bit of a contradiction. The ECB is not being as bold as should be," said Bernard McAlinden, market strategist at NCB Stockbrokers.

Banks were the top gainers on the index. Barclays was up 5.2 percent after it said its first quarter profit rose 15 percent from a year ago as strong growth at its investment bank arm made up for a big jump in bad debts. HSBC, BNP Paribas, UniCredit , UBS and Standard Chartered were 2.4-3.7 percent higher.

But Societe Generale slumped 7.3 percent after it announced a surprise first-quarter loss as higher-than-expected write-downs and provisions hit earnings. Consumer goods group Unilever gained nearly 5 percent after first quarter underlying sales beat forecasts.

Later in the session, investors will focus on results of the U.S. bank stress tests. Regulators have already told Bank of America it needs $34 billion, Citigroup $5 billion and Wells Fargo $15 billion.

"What you have got in the market is increasing optimism. We have the bank stress tests results today which have seemed to have been leaked … It is not so much that it is good news, but the market wants to believe it is final news and it is a manageable thing," said McAlinden.