Banks led European shares in a modest bargain-hunting rally on Thursday morning after the previous session's 3 percent drop, but the rebound was tempered by uncertainty over market regulation and high volatility.
By 0850 GMT, the pan-European FTSEurofirst 300 index was up 0.5 percent at 1,001.66 points. The index is still down 10.2 percent since sovereign debt worries in the euro zone escalated in mid-April.
The markets tumbled on Wednesday in response to Germany's move to ban naked short selling of some financial assets, and its unilateral action raised concerns that EU governments were divided over their approach to the turbulent markets.
Banks regained some lost ground, with Banco Santander, HSBC , BNP Paribas, Barclays and UBS up 1.2 to 3.3 percent.
"It's bargain hunting after yesterday's falls, but volatility remains high," said Will Hedden, sales trader at IG Index. "The markets did not take to the German ban and I would not expect to see people piling in too much as the risks to the downside are still very strong."
Jean-Claude Juncker, chairman of the Eurogroup forum, said financial markets were acting irrationally over the euro area's debt problems.
OIL SHARES GAIN
Energy stocks were given a boost as crude traded above $70 a barrel after U.S. crude stocks rose less than expected.
BP, BG Group, Royal Dutch Shell and Total gained 1.1 to 2.7 percent.
SABMiller sank 5.6 percent after saying it expects a recovery in consumer spending only towards the end of 2010 and reported a 17 percent rise in annual earnings which narrowly missed consensus forecasts.
British Land rose 1.9 percent, buoyed by a UBS upgrade to "buy" from "neutral" in the wake of the property group's full-year results on Tuesday, and following recent share price weakness.
Vodafone added 1.9 percent after the mobile communications firm and top Indian carrier Bharti Airtel paid a combined $5.1 billion for 3G mobile licences in India, the world's fastest growing mobile phone market.
Across Europe, the FTSE 100 index was up 0.8 percent, Germany's DAX was up 0.2 percent and France's CAC 40 was up 0.6 percent.
