European stocks advanced yesterday after suffering their biggest drop in three weeks on Thursday, as shares were left near their cheapest level in at least five years.

UBS, Europe's biggest bank by assets, and Royal Bank of Scotland climbed for the first time in four days.

Stocks sank the most since November 21st on Thursday on concern a plan by central banks to ease the credit squeeze will not be enough to prevent an economic slowdown.

"Valuations are attractive," said Philippe Gijsels, senior equity strategist at Fortis Global Markets in Brussels.

"It's maybe a good idea to look at some banks."

In Dublin, Irish Life & Permanent failed to recover from Thursday's post-trading statement punishment, losing 9 cent to close at €12.37.

Bank of Ireland fell 5.8 per cent to €10.33 despite a generally positive market at the end of the day.

The Iseq as a whole closed 1 per cent higher after weakening earlier in the day. Davy noted this was still close to being the worst fourth-quarter for the index since 1987.

National indexes advanced in 12 of the 18 western European markets. France's CAC 40 and Germany's DAX both rose 0.3 per cent. The UK's FTSE 100 climbed 0.5 per cent.

The Stoxx 50 gained 0.5 per cent, while the Euro Stoxx 50, a measure for the euro region, added 0.3 per cent.

UBS increased 1.8 per cent to 55.25 Swiss francs. Royal Bank of Scotland, the UK's second largest bank and owner of Ulster Bank in Ireland, advanced 1.2 per cent to 439p.

Banks advanced as Goldman Sachs raised its outlook on the debt of Citigroup to "outperform" from "in-line" after the largest US bank said it would assume the debt of its structured investment vehicles.

In the US last night, stocks were adding to declines, with the Dow and the S&P both down more than 1 per cent after a surge in inflation stirred concern over interest rates. - (Bloomberg)