The European Stoxx 600 index added 0.2% while the Eurofirst 300 index of large-cap European stocks rose 0.3%. However, both indices are still below their levels reached before the shock of the British referendum, which raised fears of political risks in Europe and weighed on financial sector stocks. The banking sector index rose 1.2 percent to become the biggest gainer across sectors. Intesa added 3.7 percent to top the list of gainers on the Eurofirst index, while Deutsche Bank and Lloyds were sharply higher. Some investors said: The sector was supported by news that the European Commission has approved an Italian guarantee program to provide liquidity to troubled banks when needed.

A Bloomberg report that the European Central Bank is considering easing the rules for its bond purchases was also seen as a supportive factor for the market, and the British Financial Times 100 index rose for the fourth consecutive session, heading for its biggest weekly gain in four and a half years as banks recovered after a wave of selling following the Brexit vote.

The British Financial Times 100 index rose for the fourth consecutive session, heading for its biggest weekly gain in four and a half years as banks recovered after the Brexit vote.

U.K. index gains

The British index added 15.12 points, or 0.3 percent, to 6,519.45 and its gain for the week was 6.2 percent, putting it on track to record its biggest weekly gain since December 2011.

The British index gained 15.12 points, or 0.3 percent, to 6,519.45.

Banking stocks led the British market gains, with the sector index rising 1.2% percent, with Lloyds, Barclays and RBS up between two and three percent. Although the sector is still down 10% since the referendum, it received support after Bank of England Governor Mark Carney said on Thursday that the bank may need to inject more stimulus into the British economy after the shock caused by the vote in favor of leaving the European Union, the French CAC 40 index added 0.55% percent from the opening, while the German DAX rose 0.63 percent.

Pound sterling falters

The pound fell to its lowest level in more than two years on Wednesday after Bank of England Governor Mark Carney said more stimulus measures will likely be needed in Britain this summer after Britons agreed in a referendum last week to leave the European Union. Carney, who earlier warned of a possible recession in Britain if it opts to leave the European Union, said the central bank's Monetary Policy Committee will announce a preliminary assessment of the situation on July 14 after its next meeting. Sterling fell more than 1 percent against the European currency to 83.845 pence per euro, its weakest level since March 2014, after Carney's comments were published.

The pound fell 1.6 percent against the U.S. currency to $1.3207, its lowest level of the session and less than a cent away from the 31-year low of $1.3122 hit midweek. Sterling recovered to $1.3292 at the end of the trading session.