European equities ended the first session of the quarter in positive territory, with strong metals prices on Wednesday boosting mining shares, while banks rose after slipping in four of the past seven days.

The FTSEurofirst 300 index of top European shares closed 1.8 percent higher at 865.66 points after falling 1.1 percent on the last day of the second quarter.

But the benchmark index, which slumped 45 percent in 2008, gained nearly 16 percent in the second quarter, its best performance since late 1999.

Miners got strength from a 3 percent rise in copper prices, 2 percent higher aluminium prices and a 6 percent hike in nickel.

BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources rose between 2.5 and 6.3 percent.

India-focused mining group Vedanta rose 9.9 percent after the London-listed company said it has boosted the size of its share buy-back programme by 40 percent to $350 million.

"Resource stocks are a good barometer of global economic sentiment and today the miners and energy firms are the standout performers," said David Evans, analyst at BetOnMarkets.com.

Energy shares were among the top gainers as crude jumped 2.5 percent to trade above $71 a barrel before surrendering gains in the late afternoon session.

BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro added between 1.4 and 4.2 percent.

Among the banks, Commerzbank surged 18.6 percent after the parliamentary parties in Germany's ruling coalition backed a plan to establish "bad banks" for struggling lenders, which the government hopes will spur lending and reinvigorate the economy.

Other banks also advanced, with Standard Chartered Bank, HSBC, Barclays, Royal Bank of Scotland, BNP Paribas and Deutsche Postbank up 1.4 to 8.8 percent.

Across Europe, the FTSE 100 index, Germany's DAX and France's CAC 40 were 2.0 to 2.4 percent higher.

CAUTIOUS APPROACH

Despite Wednesday's sharp rally in stocks, some analysts advised caution ahead of the second-quarter company results. Latest macroeconomic data also dampened hopes the economy was emerging from its worst slump since the Great Depression.

Figures showed that U.S. private employers cut almost half a million jobs in June and mortgage applications fell to a seven-month low last week.

The news supported other evidence from Europe and Asia that a broad recovery would be slow in coming, as euro zone manufacturing activity contracted in June, with Germany lagging behind other nations, and Japanese business morale disappointed.

The U.S. manufacturing sector shrank in June but at a slower pace than during the prior month, according to a report by the Institute for Supply Management.

"The major indices have been consolidating for one to two months, so it wouldn't surprise me if that pattern continued in the next month or two," said Andrew Bell, head of research at Rensburg Sheppards.

"The test is going to come in the next few weeks as the second quarter earnings numbers will start to come in. They are unlikely to be great but the question is will the accompanying trading statements be encouraging, against the very cautious statements we had in April."

Carrefour rose 5.7 percent after the world's second-biggest retailer unveiled a plan to save 4.5 billion euros by 2012 to boost profits at the group.

Britain's Marks & Spencer rose 3.8 percent after posting a smaller-than-expected drop in first-quarter underlying sales.