European shares rose on Tuesday, boosted by banking stocks but with gains capped by lingering worries about the U.S. economy.
The pan-European FTSEurofirst 300 index was up by 0.3 percent at 1,124.92 points around midday, while the euro zone's blue-chip Euro STOXX 50 index advanced by 0.6 percent to 2,598 points.
The STOXX 600 European banking index was the best-performing equity sector, rising 0.9 percent, and gains in French bank BNP Paribas and Spanish bank Santander added the most points to the FTSEurofirst 300.
Bank stocks have benefited from a perception that the euro zone's sovereign debt crisis has eased, following pledges from the European Central Bank (ECB) to take fresh steps to protect the euro currency from the region's economic problems.
The STOXX 600 European bank index has risen by 21 percent so far this year, outperforming gains of 12 percent on the broader FTSEurofirst 300 and Euro STOXX 50 indexes.
"Banks are sorting themselves out. If you're looking for a speculative play, that's the place to be," said McLaren Securities Managing Director Terry Torrison.
Deutsche Bank analysts also said in a research note there were less signs of funding problems for major banks, adding that its favoured picks in the sector included BNP Paribas and Credit Suisse.
U.S. BUDGET WORRIES
European equity markets have been choppy during this last month, due to worries over a lack of progress among U.S. politicians over reaching a deal to delay growth-curbing austerity measures.
Yet many investors still prefer shares to bonds or cash, due to the better yields on offer in equities with interest rates near record lows crimping returns on sovereign bonds and cash.
The FTSEurofirst 300 was close to a year-high of 1,128.65 points reached earlier this week and had hit its highest closing level since July 2011 on Nov. 29 when it ended at 1,121.83.
"Ultimately, people think Europe's OK and that equities is the place to be. If you're going to put your money anywhere, it makes sense to put in equities," said Torrison.
Others were more cautious due to worries over the U.S. "fiscal cliff" - a combination of U.S. government spending cuts and tax rises due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.
Michel Juvet, chief investment officer at Swiss bank Bordier, said he would err on the side of caution by looking to sell equities to cash in on gains made this year.
"I think there will be an agreement on the fiscal cliff, but not before the year-end. I will look to cash in and protect my performance," he said.