Banks boost Europe shares to 1-month closing high

                                
 * FTSEurofirst 300 ends 1.3 pct up, rises for fifth session
                                
 * Germany's DAX gains 1.6 percent, hits 14-month high
                                
 * Banks among top gainers on Basel grace period 
                                
 By Atul Prakash
                                
 LONDON, Dec 16 (Reuters) - Stronger financials on relief
that banks will have more time to adjust to new capital rules
propelled European shares on Wednesday to a one-month closing
high ahead of the outcome of a U.S. Federal Reserve meeting.
                                
 Investors' appetite for risky assets jumped, while trading
volumes on the FTSEurofirst 300 index <.FTEU3> were about 83
percent of its 90-day daily average.
                                
 The index of top European shares rose for a fifth straight
session to end 1.3 percent firmer at 1,031.17 points, the
highest close since mid-November. Germany's DAX <.GDAXI> rose
1.6 percent to its highest in more than 14 months.
                                
 The FTSEurofirst is up 24 percent this year and has jumped
60 percent since a record low in March.
                                
 Banks were the top gainers on news that global regulators
will give banks a grace period before forcing them to implement
stricter capital rules, easing concerns that lenders might need
to issue massive amounts of shares in the near future.
                                
 "It's certainly helpful if banks are not pressured into
having to go to the market within a short space of time," said
Luc Van Hecka, chief economist at KBC Securities.
                                
 "They have some more leeway in deciding when to strengthen
their capital base." 
                                
 The DJ STOXX banking index <.SX7P> rose 2.4 percent, while
Barclays <BARC.L>, BNP Paribas <BNPP.PA>, Societe Generale
<SOGN.PA>, Credit Agricole <CAGR.PA>, Natixis <CNAT.PA>, UBS
<UBSN.VX>, Credit Suisse <CSGN.VX>, Deutsche Bank <DBKGn.DE> and
Commerzbank <CBKG.DE> rose 1.7 to 6.7 percent.
                                
 Greek banks rose sharply after the country, hit by investor
jitters about its financial health, raised 2 billion euros from
friendly banks. National Bank <NBGr.AT>, EFG Eurobank <EFGr.AT>
and Alpha Bank <ACBr.AT> were up 4.6 to 6.7 percent.
                                
 ING <ING.AS> jumped 5.9 percent after it won strong support
from shareholders for a heavily discounted rights issue, helping
the Dutch bancassurer cut its reliance on state aid and clearing
it to launch a programme of mandated asset sales.
                                
 But Bank of Ireland <BKIR.I> was down 9 percent after
central bank Governor Patrick Honohan said the government could
increase its 25-percent indirect stakes in Bank of Ireland and
in rival Allied Irish Banks <ALBK.I> to direct 50 percent
holdings.
                                
 
                                
 ECONOMIC DATA SUPPORTS
                                
 Positive data also helped the market. Figures showed the
euro zone's dominant service sector grew at its fastest pace in
over two years during early December, while the manufacturing
sector grew at a rate not seen since March 2008. [ID:nLDE5BF0AU]
                                
 U.S. housing starts rose 8.9 percent, slightly below market
expectations, while U.S. consumer prices increased marginally in
November, suggesting little urgency for the Federal Reserve to
raise interest rates sooner as the economy steadily recovers.
                                
 The Fed is due to deliver its decision on interest rates
later on Wednesday and is expected to leave lending rates
unchanged near zero. It is not expected to shift from its pledge
to keep them low for an "extended period". [ID:nLDE5BF1RP]
                                
 "With the market expecting a slightly brighter picture to be
painted by the Federal Reserve Chairman, at the same time they
will not wish to hear any indication that the Fed will raise
interest rates earlier than expected next year," said Angus
Campbell, head of sales at Capital Spreads.
                                
 Commodity shares gained as crude <CLc1> jumped 3.5 percent
to above $73 a barrel on data showing a sharp drop in U.S.
distillate stockpiles. Key base metals rose 1.6 to 4.6 percent.
                                
 Royal Dutch Shell <RDSa.L>, Repsol <REP.MC> and Total
<TOTF.PA> were up 0.1 to 1.3 percent, while miner Anglo American
<AAL.L>, Antofagasta <ANTO.L>, Rio Tinto <RIO.L>, Xstrata
<XTA.L> and ENRC rose 1.1 to 2.2 percent.
                                
 Investor appetite for risky assets such as equities grew,
with the VDAX-NEW volatility index <.V1XI> falling 3.6 percent
to a 15-month low. The lower the index, which is based on sell
and buy options on Frankfurt's top-30 stocks <.GDAXI>, the
higher the market's desire to take risk.
                                
 Addex <ADXN.S> fell 75 percent, slammed by news it was
stopping development of its lead drug candidate and underlining
the risky and volatile nature of the business. [ID:nLDE5BF0DD]
                                
 Across Europe, Britain's FTSE 100 index <.FTSE> and France's
CAC 40 <.FCHI> rose 0.7 and 1.1 percent respectively. A Reuters
poll showed the FTSE 100 will rise about 10 percent next year
from its close on Tuesday. [ID:nLDE5BF1JC]
 (Editing by Sharon Lindores)