European shares rose early on Wednesday, adding to strong gains in the previous session, and tracking Wall Street higher after U.S. housing data beat forecasts and Federal Reserve capital proposals for banks proved less onerous than some had feared.

At 8:08 a.m., the FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.7 percent at 983.30 points, after rising 2 percent on Tuesday, following a successful Spanish debt auction, and signs of improved economic prospects in Germany.

If this recent positive trend in the data continues, it could drive the market higher, said Daniel McCormack, strategist at Macquarie.

We've had some better news in terms of the economic cycle. Housing data is important, as it's a leading indicator of the U.S. economy.

Banks extended recent gains, with the STOXX Europe 600 Euro Zone Banking Index <.SX7E> up 2.4 percent. Many banks are expected to take advantage of the European Central Bank's first ever offer of three-year loans on Wednesday, which may ease fears of an impending credit crunch and bolster bond and money markets.

(Reporting by Brian Gorman)