December 15, 2016 / 5:42 PM / 2 years ago

European shares end at 11-month high on stronger banks

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* STOXX Europe 600 index up 0.9 pct

* Banks advance on Fed’s move, hints at more

* Precious metals miners among top fallers

By Atul Prakash and Danilo Masoni

LONDON/MILAN, Dec 15 (Reuters) - European shares rose on Thursday, helped by gains in global banks after the Federal Reserve raised U.S. interest rates, while growing corporate deal activity underpinned year-end optimism.

The pan-European STOXX 600 index rose 0.9 percent, ending at its highest level since Jan. 5. It is still down nearly 2 percent so far in 2016 but could close the year in positive territory if it sees an end-of-year rally.

The European banking index surged 2.5 percent, also ending at an 11-month high. Deutsche Bank, BNP Paribas, HSBC, Santander and Credit Suisse rose 1.5 to 5.3 percent after the Fed’s move.

Banks benefited from gains by short-dated U.S. treasury yields, which touched their highest in more than seven years, after the Fed raised interest rates for the first time in a year and hinted at more in 2017.

Higher yields are a boon to banks’ profitability.

“We think that the Fed will continue to be very gradual in its rate hikes and we look for maybe two to three rate hikes in 2017, depending on how growth comes out next year,” said Bob Baur, chief global economist at Principal Global Investors.

“We expect to see higher stock prices, faster nominal growth, mildly higher interest rates and just a bit more inflation.”

Also helping financials, Italian banks rose 4.4 percent and were on course for a third straight week of gains.

Italian banks have staged a rebound since Paolo Gentiloni was appointed prime minister, on expectations that a stable political environment will help ailing banks to recapitalize. Gentiloni has won the backing of the fragmented Senate, allowing his government to formally take office.

Sources said the Italian government was ready to pump 15 billion euros ($15.58 billion) in Monte dei Paschi di Siena and other ailing banks.

Spain’s Grifols rose 6.7 percent, the top gainer in the STOXX 600 index, after saying it would buy U.S. Hologic Inc’s assets in their blood-screening joint venture and refinance its net debt in the first quarter of next year.

But French utility EDF fell 12.7 percent, wiping about 2.5 billion euros from its market value, after warning of lower earnings in 2017. The stock, which made its biggest one-day fall ever, led declines in the STOXX 600 index.

Mining shares, the year’s best performers in Europe, also lost ground, with the sector index falling 2.3 percent on a firmer dollar following the Fed’s move. A stronger dollar generally makes commodities costlier for other currency holders.

Precious metals miners were among the hardest hit as gold dropped to its lowest in more than 10 months. Shares in Fresnillo, Randgold Resources, Acacia Mining and Centamin slumped 5.6 to 11.9 percent. ($1 = 0.9628 euros) (Editing by Larry King)

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