European shares rose on Monday as gains in British banks and oil stocks helped investors recover some of the sharp losses suffered in the last session.

At 6:32 a.m. EST, the FTSEurofirst 300 index of top European shares was up 1.5 percent at 1,328.3 points, after having lost nearly 2 percent on Friday.

The British government's decision to temporarily nationalize Northern Rock, combined with acquisition talk and optimistic expectations for dividends made banks the top performers of the day.

Barclays rose by nearly 7 percent, while Royal Bank of Scotland and HBOS rose 3-4 percent after the British government's first nationalization in three decades.

Credit Suisse rose 3.2 percent, boosted by an agency report that Qatar had bought shares in the company.

Oil stocks rose with a rally in crude futures CLc1 to near one-month highs, with BP up 2.1 percent, Total up 1.7 percent and Royal Dutch Shell up 1.8 percent.

The FTSEurofirst has lost about 12 percent in 2008. Analysts said that stock rallies would be brief and the overall tone in the market was still negative in the wake of bank writedowns stemming from the credit crisis.

I'm more inclined to view this as a bounce in a bear market, said Andrew Lynch, a portfolio manager at Schroders.

If we think the Fed chopped (U.S.) rates by 125 basis points since the end of last year, if that kind of a dose didn't get some kind of bounce, then things really would be absolutely terrifying, but I think the fundamentals are still relatively poor, he said.

We get days like today where Qatar is buying bank shares, the market rallies. But the long-term fundamentals are still pushing us to the downside rather than the upside.

The broader European market has gained nearly 4 percent since January 22, when the U.S. Federal Reserve cut interest rates, but is still down 20 percent from last July's multi-year peak, a drop that defines a bear market for many analysts.

This is a bear market, and there will be some rallies in it, said Justin Urquhart Stewart of 7 Investment Management.

The focus this week is going to be on the banks, as investors scrutinize their results to see if they've put off balance sheet things that should actually be on balance sheet, and whether we've actually been led a merry dance.

Banks were also boosted by a report in The Sunday Times which said Lloyds TSB and Barclays would likely increase their dividends when they report their results this week. Lloyds shares rose 5 percent.

Losers within the financial sector included Swiss bank UBS, which shed 1.5 percent, after HSBC cut its price target for the stock and a Bear Stearns downgrade.

Scandal-hit French bank Societe Generale and peer BNP Paribas and Barclays, report results this week.

Britain's FTSE 100 rose 1.9 percent, Germany's DAX rose 1.7 percent and France's CAC gained 1.4 percent.

U.S. markets are closed for Presidents Day.

In the telecoms sector, Telecom Italia shares pared earlier losses inspired by a newspaper report saying its main shareholders are considering a capital increase.

Aldo Minucci, chairman of holding company Telco, on Sunday denied that the holding had scheduled meetings to examine possible extraordinary operations on Telecom Italia.

Telecom Italia CEO Franco Bernabe said the company was not looking into the possibility of a capital increase, pushing the shares back up by about 1 percent.

(Additional reporting by Sitaraman Shankar; Editing by Erica Billingham)

BNP Paribas Barclays