By Andrea Tryphonides And Matthew Allen
European stocks reversed early losses as banks led a late, sharp rally that helped major measures finish in positive territory despite worries over the strength of the global economic recover.
As news about the looming European financial-system stress tests began to trickle into the market, bank stocks marched higher. The Committee of European Banking Supervisors is expected to outline its methodology for the tests on Thursday.
Investors welcomed the prospect of additional transparency about the health of the banking system and cheered indications that the tests won't be excessively rigorous. The final results of the stress tests are due on July 23.
Earlier in the session, the European Parliament backed rules to limit bankers' bonuses and reinforce capital requirements. The stricter rules on capital would take effect in 2012.
The pan-European Stoxx 600 index ended up 1.4% at 246.06.
In LONDON , the FTSE 100 index finished up 1.0% at 5014.82, pushing it above the 5000 level. Barclays /zigman2/quotes/206581728/composite BCS +0.90% closed up 6.2% and Royal Bank of Scotland gained 4.7%. Investors also appeared to welcome news that State Street /zigman2/quotes/209758976/composite STT +0.84% forecast that its second-quarter earnings would be higher than expected.
Like banks, major oil and gas companies rose. BP /zigman2/quotes/207305210/composite BP +0.03% gained 4.8% after speculation increased that a sovereign-wealth fund might take a stake in the company. Tony Hayward , BP's chief executive officer, has engaged in meetings with officials in Abu Dhabi, including the Crown Prince Mohammed bin Zayed Al Nahyan.
In PARIS , the CAC 40 index closed up 1.8% at 3483.44. Société Générale shares rose 7.1% and Total gained 1.6%. PSA Peugeot Citroen shares rose 2.9%. Sales of its new vehicles soared nearly 17% to a record 1.86 million units in the first half.
Before the bank rally, slumping metals prices and uninspiring economic data depressed shares. German manufacturing orders were weaker than expected. The final figures on first-quarter gross domestic product in the euro zone showed growth of 0.2% from the fourth quarter of 2009, as expected.
In FRANKFURT , the DAX gained 0.9% to 5992.86. Deutsche Bank /zigman2/quotes/203042512/composite DB -0.14% surged 3.8%, but HeidelbergCement fell 3.1%.
Most Asian markets closed lower. Technology shares dropped despite news that Samsung Electronics forecast a record operating profit.
"It's the same story from before; the market can't free itself from recent worries about slowing growth in the U.S. and China," said Samsung Securities analyst Oh Hyun-seok.
In SEOUL , the Kospi fell 0.6% to 1675.65. Samsung Electronics projected a record operating profit of five trillion Korean won ($4.09 billion) for the second quarter, but concern over a possible oversupply in the memory-chip market pressured the stock. The shares fell 0.8%.
In TOKYO , the Nikkei Stock Average fell 0.6% to 9279.65, after rising the previous three sessions. Investors turned cautious on exporters, which are to a large extent held hostage to moves in the foreign-exchange market. Honda Motor /zigman2/quotes/207173990/composite HMC -0.90% gave up 1.6%, Nissan Motor /zigman2/quotes/208298710/delayed JP:7201 -1.16% fell 2.5% and Sony /zigman2/quotes/208567357/composite SNE +0.98% dropped 1.7%.
In SYDNEY , the S&P/ASX 200 lost 0.5% to 4254.57. The market reversed course after opening higher as weakness in financial issues outweighed modest gains in some mining stocks.
The resource sector added to gains achieved on Tuesday, aided by news of Chinese plans to move forward spending on infrastructure. BHP Billiton /zigman2/quotes/208108397/composite BHP +1.00% gained 0.8% and Rio Tinto advanced 1.1%.
In SHANGHAI , China's benchmark stock index, the Shanghai Composite, ended 0.5% higher after a choppy trading session. Gains in consumer and cement stocks offset broad declines in banks. Anhui Conch Cement /zigman2/quotes/204422624/delayed CN:600585 +0.21% Co. rose 1.3% and Hebei Taihang Cement jumped 3.4%. Chongqing Brewery added 1.9%. and Bright Dairy & Food climbed 2.4%.
"The index is consolidating after enormous falls in recent weeks. The market should be starting to reverse its risk-averse trading approach," said Wang Junqing from Guosen Securities.
Chinese banks declined in Hong Kong and performed weakly in Shanghai as investors worried about liquidity in the market ahead of Agricultural Bank of China /zigman2/quotes/204629388/delayed CN:601288 0.00% 's listing and after Bank of China announced plans for a rights issue last week. Adding to the concern, the Chinese-language newspaper Ming Pao reported that Industrial & Commercial Bank of China—the mainland's biggest lender by assets—might raise up to 45 billion yuan ($6.6 billion) in a rights issue. ICBC dropped 0.5% and Bank of China ended flat.
In HONG, KONG , the banks fell 1.4% and 1.3%, respectively. The Hang Seng index slipped 1.1%.
Sarah Turner and Nikhil Lohade contributed to this article.