PARIS: European stocks rose in early trade on Friday, resuming a brisk three-week rally after the European Central Bank's decision to raise interest rates helped fuel optimism over the health of the euro zone economy.
Investors were also relieved a strong aftershock which struck Japan's earthquake-ravaged northeast late on Thursday had not done major damage. News of the earthquake had sparked profit taking in late trading in Europe on Thursday.
At 0833 GMT, the FTSEurofirst 300 index of top European shares was up 0.5 percent at 1,149.98 points.
"The ECB's move is sort of removing the punch bowl, which is a good thing at this point. The message is that overall, the European economy has been improving," a Paris-based trader said.
As expected, the European Central Bank raised interest rates for the first time since the 2008 financial crisis on Thursday, and market expectations of more hikes this year sent the euro to a 15-month high against the dollar, boosting foreign investors' appetite for the region's stocks as they seek exposure to the rallying currency.
The 30-day rolling correlation between the euro and the euro zone's blue chip Euro STOXX 50 index has been increasing since mid-March, hitting 0.37 on Friday.
Portuguese stocks extended their relief rally while euro zone finance ministers were set to discuss the country's bailout plea on Friday, including how much it needs and what reforms it could do in return.
Portugal's PSI 20 index gained 1.1 percent, with Banco Espirito Santo up 1.7 percent and Banco BPI up 1.3 percent.
The Peripheral Eurozone Countries Index rose 1.6 percent, while the Euro STOXX 50 volatility index, one of Europe's main barometers of investor anxiety, dropped 4.5 percent to 20.1 points, signalling a drop in fears of contagion from Portugal debt woes to other European countries.
Mining shares such as Xstrata and Anglo American featured among the top gainers, rising along with buoyant metal prices, while Total, BP and Royal Dutch Shell added 0.4-1 percent as Brent crude rose $1 to a fresh 32-month high on supply cuts in Libya.
The FTSEurofirst 300 index has risen about 8 percent over the past three weeks, pushing the index close to 'overbought' territory, with its relative strength index (RSI) at 59 on Friday -- 70 and above is considered 'overbought territory' -- while its slow stochastic, an indicator of short-term trends, showed the index was ripe for a pull-back. Derek Lawless, head of WorldSpread France, said a 3 to 4 percent retreat wouldn't come as a surprise.
"People have taken their eyes off Brent prices, which trade at $124; the Bank of France just trimmed its first-quarter growth forecast, which is never a good sign, and down the road, consumers in peripheral European countries will definitely suffer from the monetary tightening," he said.
In a note to clients, UniCredit recommended investors to take long positions on European insurance stocks and short retailers' stocks as the ECB's rate rises will be supportive to the insurance sector while crimping consumer spending.
Insurance stocks were among the top gainers on Friday, with AXA up 1.5 percent, and Swiss Life up 2.2 percent.
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