Edinburgh - European shares rose on Friday, led up by a relief rally in Portuguese banks, with investors reassured that concerns over the country's biggest listed bank was unlikely to engulf other firms in the sector.

Portugal's PSI share index was up 2 percent in early deals, after falling 4.2 percent to a nine-month low on Thursday, with other indexes firming up across the region.

The fall in the previous session came after shares and bonds of Espirito Santo Financial Group, the chief shareholder in Banco Espirito Santo, were suspended over “material difficulties” at parent firm ESI.

On Thursday Banco Espirito Santo said losses associated with the founding family would not affect the bank.

Lenders Banco BPI and Banif were up nearly 6 percent, even as both Banco Espirito Santo and Espirito Santo Financial Group failed to open on Friday.

“While the bank has some exposure to the holding company, over a billion euros, it's very clear that they have enough excess capital, over 2 billion euros,” Veronika Pechlaner, who helps manage $13 billion of assets at Ashburton Investments, said.

“So the systemic risk to the Portuguese banking system is limited, and that's what the market is telling you this morning.”

The FTSEurofirst 300 was up 0.4 percent to 1,354.80 at 11:54 SA time, although the index was still set for its worst weekly performance since April, down 2.9 percent.

Concerns over Banco Espirito Santo, as well as an enquiry by the United States over whether German lender Commerzbank broke sanctions restrictions, have hit the banking sector especially hard this week.

A 1.8 percent rally in euro zone banks saw the sector down only 4 percent for the week, having been down as much as 7.3 percent for the week on Thursday, at its lowest level this year.

The Austrian banking sector has also been in focus in recent weeks due to its exposure to eastern Europe.

Erste rebounded from recent falls to rise 4.5 percent, however, benefiting from an upgrade from UBS.

Analysts at UBS said that the recent fall, down nearly 20 percent since last week, “more than reflects the expected losses in problematic geographies,” upgrading the stock to “buy” from “neutral”. - Reuters