European shares close sharply higher; banks lead

LONDON, Nov 23 - European shares recorded their biggest one-day percentage gain in more than five weeks on Monday, with better-than-expected U.S. housing data boosting optimism on the economy and banks and commodity shares gaining.

The FTSEurofirst 300 <.FTEU3> index of top European shares rose 2 percent to a provisional close of 1,022.83 points, the biggest one-day percentage gain since Oct 14.

The index made up more than half the losses it suffered by declining in the previous four sessions. It has surged more than 58 percent since hitting a record low in early March.

Sales of previously owned U.S. homes rose in October at a faster-than-expected pace to the highest in more than 2-1/2 years as buyers rushed to take advantage of a popular tax credit, a survey showed on Monday.

The National Association of Realtors said sales surged a record 10.1 percent to an annual rate of 6.10 million units, the highest since February 2007, from a downwardly revised 5.54 million unit pace in September. [ID:nN23249040]

"There's optimism on the economy after the U.S. housing data," said Heinz-Gerd Sonnenschein, equity markets strategist at Postbank, in Bonn.

"Markets can rally further from here, but not too far as central banks start tightening policy."

Banks were supported by positive macro-economic data and after senior U.S. Federal Reserve official James Bullard said the central bank should keep alive its mortgage-related assets purchase programme beyond a planned end-date to give policy-makers more flexibility. [ID:nN22246631]

BNP Paribas <BNPP.PA>, Banco Santander <SAN.MC>, Barclays <BARC.L>, Credit Suisse <CSGN.VX>, HSBC <HSBA.L>, and UniCredit <CRDI.MI> rose between 2.7 and 3.8 percent.

Lloyds Banking Group <LLOY.L> was up 3.8 percent. The bank said demand for its 8.78 billion pounds bond exchange was strong, indicating possible appetite for its record rights issue due to be priced on Tuesday. [ID:nLK695084] ((brian.gorman@thomsonreuters.com; +44 20 7542 9128; Reuters Messaging: brian.gorman.thomsonreuters.com@reuters.net))