European Shares Rally on Rescue Fund Hopes

European shares rose on Wednesday, after reports that France and Germany had agreed a plan to boost the euro zone rescue fund to 2 trillion euros, which helped to fuel a late rally on Wall Street.

However, two senior European Union officials said on Wednesday that no such agreement had yet been reached on scaling up the size of the fund.

"It's interesting that despite the denial the market still wants to go higher, which implies the market does think there's something in the pipeline," Jeremy Batstone-Carr, strategist at Charles Stanley, said.

"We'll see more whipsawing in the market in the run-up to Sunday (when an EU summit takes place)."

At 0825 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 965.18 points, after falling 0.4 percent in the previous session.

The pan-European benchmark is up more than 13 percent from a September low on growing optimism that policymakers would act to tackle the euro zone debt crisis but it is down more than 13 percent in 2011. Apart from the euro zone crisis, investors have worried about slowing global growth.

Technically, the index may face resistance at around 982, the 38.2 percent retracement of its fall from a February high to the September low.

French banking heavyweight BNP Paribas was among the gainers, up 3.1 percent following a decline in the previous session, after Moody's warned on France's credit outlook.

The STOXX Europe 600 Banking Index rose 1.1 percent.

Spanish stocks were mostly higher, as Europe-wide optimism helped them shrug off downgrades from credit agencies.

Moody's cut Spain's bond rating to A1, from Aa2, saying that no credible resolution of the current sovereign debt crisis had emerged and adding: "it will in any event take time for confidence in the area's political cohesion and growth prospects to be fully restored".

Spain's Banco Santander and BBVA rose 1 and 0.9 percent respectively.

Among individual shares, Home Retail , Britain's No. 1 household goods retailer, fell 13 percent in heavy trading volumes after posting a 70 percent slump in first-half profit, with profitability at its Argos business collapsing as its cash-strapped shoppers felt the pain of the economic downturn.