Europe close: Stocks bounce back, led by banks

European stocks rose on Friday, underpinned by strong bank shares and firmer oil prices as worries about Brexit receded, at least for now.

The benchmark DJ Stoxx Europe 600 index gained 1.40% or 4.49 points to 325.78, Germany’s DAX rose 0.85% or 80.89 points to 9,631.36 and France’s CAC 40 advanced 0.98% or 40.82 points to 4,193.83.

Meanwhile, Greece’s Athex Composite rallied 5.4% after Eurozone officials approved the payment of €7.5bn of aid. The payment was given the green light at a meeting of the European Stability Mechanism in Luxembourg on Thursday and will allow the troubled nation to make its July loan repayments.

It is part of the €86bn bailout that was agreed last year between Athens and international creditors in exchange for a series of economic overhauls.

That turned banks into the standout gainers in Europe, with the Stoxx 600 sub-index for the sector up 3.69%.

In commodity markets, oil prices recovered, with West Texas Intermediate up 2.75% at $47.52 a barrel and Brent crude up 3.0% to $48.65.

Markus Huber, a trader at City of London Markets, said: “Besides traders taking advantage of lower prices and sharply 'oversold' market conditions some are also convinced that the tragic killing of UK MP Jo Cox yesterday could have a negative impact on the strong momentum of the Leave campaign. Whilst sentiment has undergone somewhat of a shift in the past 24 hours it is way too early to say that the bottom is in place, instead with more polls being released in the next few days volatility is likely to tick higher once again as we are approaching next Thursday.

“Overall after yesterday's big move off the lows a much narrower trading-range appears likely with possibly some weakness towards the end of the day as traders are reluctant to keep too much of a risk exposure going into the weekend due to uncertainty regarding next week's referendum.

Morgan Stanley said in an equity strategy note that its base case was for the UK to remain in the EU, a scenario that could push the FTSE 100 up by as much as 14% from current levels.

In the event of a vote to Remain, the bank expects the FTSE 100 to move up to a range of between 6,500 and 6,800 and the Stoxx 50 to move up to 3,150-3,300.

MS pointed out that with European indices further below their three- and six-month averages than UK indices – perhaps reflecting concerns over political contagion into Europe or an expectation that a weaker pond would limit downside for UK indices – it is possible European stocks will rally harder than UK equities in the event of a Remain vote.

If the UK votes to stay in the EU, the MSCI Europe could rally 5%-10%, although a drop of between 15% and 20% might ensure in the case of a Brexit scenario, MS said.

In corporate news, Tesco was a little higher after confirming the sale of its Dobbies Garden Centres chain.

Shares in Spain's Gamesa jumped 5.61% after announcing it would merge its wind-turbine making operations with those of rival Siemens.

Ericsson AB was higher despite news it received a request from US authorities in 2013 to answer questions relating to its operations.

National Grid was under pressure after MPs said the electricity and gas network operator should be split up to create an American-style independent operator system.