Shares in European banks rose strongly on Wednesday, driven by relief over a half-percentage point cut in U.S. interest rates, even though some analysts say the credit crunch which has battered stocks is far from over.

The DJ Stoxx European banks index was 3.2 percent higher, outshining the all-sector FTSEurofirst 300 index of top European companies which was 2.1 percent higher.

It has been a good 24 hours for the banking industry, said Peter Thorne of Helvea in a note.

Better-than-expected third quarter results on Tuesday from Lehman Brothers, the first of the Wall Street investment banks to report, and signs that a run on deposits at British mortgage lender Northern Rock was abating after the authorities said they would stand by depositors, also lifted sentiment.

The Bank of England ... realized that its main duty is not to pontificate about moral hazard but to protect depositors and the financial system, said Thorne. The Fed realized that protecting growth is more important than inflation and finally Lehman Brothers has shown that a well managed bank can still make a decent return.

Apart from British banks, Allied Irish Banks was a big gainer, jumping 7.89 percent.

Northern Rock's share price remained under pressure. The stock plunged almost 20 percent on rumors of a cut-price takeover bid although it recovered some ground later.

Irish stockbroker Davy said Allied Irish Banks, Anglo Irish Bank and Irish Life & Permanent were all comfortable with their own recently upgraded earnings outlooks for 2007.

Banks in Ireland, which has an overheated property market, had taken a battering on fears that credit market turmoil could puncture house prices.

The rise has been quite indiscriminate, said a banking analyst based in Frankfurt. The Fed cut has gone down well but it has drawn attention to weakness in the U.S. economy. Restoring confidence to capital markets is no longer a matter of cutting rates.

Lingering fears that the United states could slide into recession were still at the back of many investors' minds.

The point is we don't know whether there will be a U.S recession, said Simon Maughan at MF Global Securities.

People are very focused on the U.S. housing market as a potential risk. The rally is based on the hope it (the interest rate cut) will help the housing market and avoid a consumer recession, he added.

French bank Societe Generale rose 5.75 percent after Morgan Stanley hiked its price target and BNP Paribas was up 4.4 percent.

Shares in Credit Agricole were flat after it announced an unauthorized 250 million euro ($349.6 million) trading loss at its Calyon investment banking division.

UBS, Credit Suisse and Deutsche Bank, Europe's leading trio of investment banks, all advanced, rising by 4.1 percent, 4.04 percent and 3.76 percent respectively.

Even Austria's Raiffeisen International gained 4.37 percent despite having a large rights issue in the works.