European equities managed modest gains on Thursday amid volatile trading sparked by calls from the European Central Bank for caution about the prospects for a sustained economic recovery.

Eurotunnel was the best-performing stock, jumping 23.4 per cent to €5.90 after being upgraded by Cheuvreux. The Paris-based group has gained nearly 40 per cent since Monday, when two funds managed by Goldman Sachs opted to convert their bonds into shares, putting them in control of 21 per cent of the business.

Overall, the FTSE Eurofirst 300 inched 0.1 per cent higher to 988.33. The index has jumped 54 per cent since hitting its March low. Germany’s Xetra Dax rose 0.4 per cent to 5,594.77, while France’s CAC 40 was 0.1 per cent lower at 3,705.87.

Financial stocks fared badly, with traders concerned that the recent rally had gone too far, too fast.

Germany’s Commerzbank, which fuelled the recovery in the sector on Wednesday after announcing it intended to repay publicly funded guarantees, slipped 3.7 per cent to €8.18. The reversal in its fortunes extended to compatriot Deutsche Postbank, which fell 5.2 per cent to €24.65.

French banks were also hit, with BNP Paribas falling 2.3 per cent to €52.90, Crédit Agricole down 0.8 per cent at €12.85 and Société Générale slipping 1 per cent to €50.80.

Spain’s Banco Popular was 4.9 per cent lower at €7.05 after it issued €500m new shares and placed them with selected investors. Banco Santander fell 1.8 per cent to €10.52.

French group Vivendi fell 2.2 per cent to €19.10, amid doubts over its €2bn ($2.9bn) offer for Brazilian telecoms operator GVT.

“Brazil is a new market for Vivendi, and the acquisition is not without risks,” said Alex Griffiths, senior director of Fitch Ratings’ corporate group in London. “However, strong growth prospects in the Brazilian telecoms market, combined with GVT’s unique strategy and market position, means that the potential rewards are significant.”

The insurance sector enjoyed gains. Switzerland’s Helvetia was up 3.8 per cent at SFr355 after KBW raised its price target from SFr405 to SFr420 on the back of better-than-expected first half results.

“Helvetia may not offer investors the excitement of its more challenged peers, but with a combination of solid finances, value and emerging growth potential, this remains an appealing share,” KBW analysts said.

Germany’s Allianz rose 1.7 per cent to €81.15 after naming Christof Mascher as its new chief executive. France’s Axa was 2 per cent higher at €16.63.

German construction company Bilfinger Berger, which cut its 2009 operating profit outlook due to a legal dispute over a road construction project in Qatar, was up 5.6 per cent at €47.25 after its price target was raised by Deutsche Bank from €43 to €48.

Italian bank Intesa SanPaolo was little changed, falling 0.2 per cent to €2.97, in spite of speculation that it could sell its subsidiary Banca Fideuram for around €4bn.

ASML, the Dutch chip equipment maker, rose 2.2 per cent to €20.55 after increasing its sales guidance on expectations of improving consumer demand and higher chip prices.

SES, the satellite operator, made significant gains, climbing 5.8 per cent to €14.63 after Merrill Lynch raised its rating from “neutral” to “buy”.

OPAP, Greece’s betting monopoly, fell 4.4 per cent to €17.21 after employees threatened to call a strike.

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