* FTSEurofirst 300 up 0.3 pct
* BP, Saipem fuel energy rally after results
* Deutsche Bank, UBS hit, raise buffers for legal costs
By Francesco Canepa
LONDON, Oct 29 (Reuters) - European shares rose modestly onTuesday as estimate-beating results at BP and Saipem fuelled a surge in the oil sector, a major laggard ofthis year's equity rally.
British oil major BP rose 4.9 percent, the biggest boost tothe pan-European FTSEurofirst 300 index, as it unveiledforecast-beating results, a dividend hike, and a promise to sellmore assets and return the proceeds to shareholders.
The report raised market expectations ahead of updates fromother oil majors such as Royal Dutch Shell later thismonth and helped to send the STOXX Europe 600 Oil & Gas index 1.5 percent higher.
"BP's actions this morning raise the bar for others acrossthe sector. Investors want to see cash being returned toshareholders, ideally in the form of dividends but also sharebuybacks," Neill Morton, an analyst at Investec, said.
"In the energy space we're not out of the woods yetregarding underperformance, but to some extent any recoverydepends on the action of managements."
Oil stocks were up just 1.8 percent for the year at theclose on Monday, lagging a 14 percent rally for the broadermarket on concerns about falling oil prices and rising costs.
Of energy companies that have reported so far, 75 percenthave missed analyst estimates, compared to 47 percent for themarket as a whole, contributing to the negative investorsentiment on the sector, StarMine data showed.
Among the least-loved stocks has been Italian oil servicesgroup Saipem. It confounded market bets for a thirdprofit warning on Tuesday by confirming its earnings for theyear.
Around 15 percent of Saipem shares available to be borrowedwere out on loan to short sellers in the run to the results,Markit data showed, a multi-year high if periods around dividendpayments, when arbitragers borrow the stock for tax purposes,are excluded.
Short sellers borrow a security and sell it, betting theywill be able to buy it back at a lower price before returning itto the lender, bagging the difference.
BP and Saipem were among the top risers on the FTSEurofirst300 index, which was up 0.3 percent at 1,286.96 pointsat 1128 GMT.
Finnish handset maker Nokia topped the indexafter recording what traders describe as a smaller-than-expected drop in operating margin at its telecoms equipmentunit.
The FTSEurofirst has struggled to make much headway sincehitting a five-year high a week ago, hit by concerns aboutbanks, mixed earnings reports and uncertainty about the U.S.Federal Reserve's future monetary policy.
Deutsche Bank and UBS, recently hit byallegations over a scam to manipulate inter-bank lending rates,fell on Tuesday as they said they were holding more capital todeal with legal costs. [ID:nL5N0IJ092
"They (regulators) are looking for a pound of flesh ... andI think that's the way it's going to be from now on," said NickXanders, head of strategy at BTIG. "The sector has started toroll over and I think it will continue."
The STOXX Europe 600 Banking index has fallen 2percent in the past week, hit by mixed earnings and concernsabout a review of euro zone's bank balance sheets that mayresult in some lenders having to raise capital.
Traders said many investors would also avoid taking on bignew equity positions before a Federal Reserve meeting whichbegins on Tuesday. The Fed is not expected to make any shift inmonetary policy this week as it waits for more evidence of howbadly Washington's budget battle hurt the U.S. economy.
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