European shares rose in early trade on Thursday, tracking sharp gains made by U.S. and Asian stocks overnight as equity markets continued to recover from a recent correction sparked by fears over a credit crunch.

A $2 billion injection from Bank of America Corp into Countrywide Financial Corp, the largest U.S. mortgage lender, to help it shore up its finances as it struggles with a liquidity crunch helped ease market fears over the potential impact from the turmoil in the U.S. subprime market.

The news buoyed recently hammered shares of financial institutions, such as British mortgage bank Northern Rock, which rose by nearly 5 percent and was also lifted by bid talk, traders said.

At 3:59 a.m. EDT, the pan-European FTSEurofirst 300 index was up 0.9 percent, at 1,519.76, rising for the fifth session in a row.

The battle raging between confidence-building and risk aversion looks set to continue in the coming weeks. Since, however, the valuation is now clearly favorable again, we still see good odds on the equity markets stabilizing, Gerhard Schwarz, strategist at HVB/UniCredit, in Munich, wrote in a note.

Miners led gains again, with Anglo American up 2.7 percent and Rio Tinto adding 2.6 percent.

Swiss cement maker Holcim gained nearly 3 percent after posting strong earnings.

The FTSEurofirst 300 has gained 5.6 percent since the Fed made an emergency half point cut in the primary discount rate governing direct Fed loans to banks on Friday in a move to ease a credit crunch and soothe turbulent markets.

In this context, we interpret the Fed's monetary policy resolutions as an important confidence building measure. Even though it is currently still unclear to what extent further moves have to and will follow, the indicated willingness to act should, nevertheless, bolster confidence that the spill-over effects to the real economy and earnings estimates will remain limited, Schwarz wrote.

Around Europe, Germany's DAX index was up 1 percent, while both UK's FTSE 100 index and France's CAC 40 gained 1.4 percent.

HSBC remained flat, falling behind a 1.1 percent rise by the Dow Jones STOXX Bank Index, after Europe's biggest bank said it will close a Carmel, Indiana, office and cut 600 jobs as the fallout from the U.S. mortgage crisis continued to spread.

German wind turbine maker Nordex surged 6.7 percent after reporting upbeat first-half results and confirming its full-year outlook.

Spanish airline Iberia gained nearly 5 percent, lifted by a report in El Pais newspaper saying private equity group TPG and British Airways could launch an offer within a month.

The El Pais story echoed a Reuters story on Wednesday quoting sources close to the deal as saying the TPG-led group was wrapping up due diligence on Iberia and is expected to proceed with a formal bid in mid-September.

On the macroeconomic front, there was little diaried apart from U.S. jobless claims figures expected at 8:30 a.m. EDT.