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LONDON (Reuters) - European shares ended higher on Wednesday in another session dominated by earnings, as French lender Credit Agricole (CAGR.PA) led banking stocks to a three-week high.
The pan-European STOXX 600 index rose 0.3 percent with the banking index .SX7P the top sector, up 1.4 percent.
Shares in Credit Agricole jumped 4.7 percent after France's biggest retail bank beat forecasts with a smaller than expected earnings drop in the fourth quarter.
The reaction was particularly positive to results from Credit Agricole's French retail bank unit LCL, which analysts at Jefferies said had been an ongoing concern for some investors."
"(Credit Agricole) remains one of our favourite names in France. However, we are aware that political uncertainties could weigh on the performance of the French financials until May," they said in a note.
Banking stocks were also helped by hawkish rhetoric from U.S. Federal Reserve Chair Janet Yellen who stood by the stance she took on Tuesday that the central bank was on track to raise interest rates at an upcoming policy meeting.
Low interest rates put pressure on banks' margins, as has been the case in Europe.
Some analysts were cautious on the move higher as banks looked scored their third straight session of gains.
"There does not seem to be yet the environment that would actually bring about the sustained improvement in the European banks on the interest rate side, on the operational side, on the conduct side," Ken Odeluga, market analyst at City Index, said, adding that he expected the rally to fade.
Earnings also helped more broadly, with Finnish packaging maker Huhtamaki (HUH1V.HE) rising 8.7 percent after reporting results, the top gainer on the STOXX 600 index.
Brewer Heineken (HEIN.AS) rallied 3.7 percent after confirming its margin target.
Swiss software provider Temenos (TEMN.S) dropped 3.4 percent after reporting results and announcing a proposal to acquire Australia's Rubik Financial RFL.AX.
"While management seemed confident on visibility, the business is lumpy," analysts at UBS said in a note, adding that they were sticking with their "sell" rating on the stock.
Reporting by Kit Rees; additional reporting by Danilo Masoni; Editing by Tom Heneghan