European stocks were higher at midday on Wednesday after a stronger-than-expected take-up at the European Central Bank's first three-year lending operation eased credit crunch fears.

Banks took 489 billion euros (409 billion pounds) at the ECB offering, sparking hopes the money may be used to buy Italian and Spanish debt. It was above the 310 billion euros forecast in a Reuters poll.

The FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.8 percent at 983.92 points at 10:47 a.m. (British time) in thin trade ahead of the Christmas break, adding to a 2 percent rise on Tuesday.

From a liquidity perspective it helps banks shore up balance sheets, but there are longer term questions about why the banks need so much money, Joshua Raymond, Chief Market Strategist, City Index, said.

Low volumes are exacerbating the equity market move up and I think any gains are going to short lived.

Euro zone banks were the top gainers, with Intesa SanPaolo up 4.2 percent and BNP Paribas up 3 percent.

It shows how difficult banks are finding it. It is positive but it is also negative. It is difficult to be positive about it, even though markets are higher. It is an indication of how frozen up the interbank market is, Michael Hewson, market analyst at CMC Markets, said. The key question now is how much of that cash finds its way into businesses.

The strong rally in banks eclipsed a drop in European tech shares after earnings from U.S. major Oracle fell short of forecasts for the first time in a decade on sluggish software and hardware sales, fuelling fears of a global recession that would hurt tech spending.

German group SAP was down 3.1 percent and Software AG dropped 2.6 percent. France's Capgemini lost 3.3 percent.


The FTSEurofirst 300 is down 12 percent in 2011, hurt by fears the euro zone debt crisis could lead to massive defaults and drag the region into a recession.

According to data from EDHEC-Risk Institute, short-selling has been the best hedge fund strategy in 2011, up 6.3 percent in the first 11 months, while world stocks <.MIWD00000PUS> were up 0.7 percent year-to-date and European stocks <.STOXX> down 13 percent.

The second-best strategy has been fixed-income arbitrage, up 3.5 percent in the first 11 months, while all other strategies struggled although none posted double-digit losses, EDHEC data showed. (Additional reporting by the London stock market team)