European shares rally, snap five-day losing run

European equities broke a five-day losing streak on Tuesday in a broad-based rally, with banks up as worries of tighter corporate credit costs waned.

The pan-European index closed 2.1 percent higher at 1,549.92, its biggest one-day rise since March 15. The index hit a five-month closing low in the previous session on concerns of a credit crunch. U.S. stocks also rose on Tuesday.

Shares in Royal Bank of Scotland, HSBC, UBS and Deutsche Bank were among the biggest positive influences on the FTSEurofirst 300 index.

The index has lost 5 percent since hitting a 6-1/2-year high of 1,635.6 on July 13, but up about 4 percent so far this year.

"We still find fundamentals supportive, especially for European shares. European economies are growing quite strongly and profit growth continues to be stronger than expected," said Dirk Thiels, head of global equity funds at KBC Asset Management.

The iTraxx Crossover index, the most widely watched indicator of European credit sentiment, traded at 410 basis points, some 40 basis points lower versus late Monday and below Monday's record high of 505 basis points.

"We think that the rise we have seen is only temporary because from a fundamental point of view, there isn't really any indication that these spreads should be higher," said Thiels.

"The overall debt ratios of companies worldwide and especially in Europe have come down," he said.

On Tuesday, U.S. stocks were supported by strong earnings and as a key inflation indicator showed a smaller-than-expected rise.

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Germany's 30 share DAX rose 1.7 percent, Britain's FTSE 100 index advanced 2.5 percent and France's CAC 40 gained 1.9 percent.

"It's just all to do with credit spreads and risk fears. In the background, economic growth is coming through stronger than expected, and the corporate numbers, particularly on the industrial side, are being pretty strong as well," said Andrea Williams, head of European Equities at Royal London Asset Management.

Among standout gainers, shares in Ryanair rose 11.6 percent after the low-cost airline reported better-than-expected first-quarter profit.

Drugmaker GlaxoSmithKline gained 3.3 percent after a U.S. regulatory panel said one of its key drugs should stay on the market.

Shares in German industrial and commercial vehicles group MAN advanced 4.3 percent as it raised full-year forecasts after beating second-quarter operating profit. (Additional reporting by Amanda Cooper)