NEW YORK (CNNfn) - European markets closed higher Tuesday after some positive follow through from Monday's widespread rally in the U.S. led investors off the sidelines.
London's FTSE 100 climbed 1.07 percent to 4,6063.4 and the CAC 40 in Paris gained 1.08 percent 3,902.85, while Frankfurt's electronically traded Xetra Dax advanced 1.5 percent to 4,101.45.
The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, gained 1.8 percent.
In the U.S., the Nasdaq drifted 0.12 percent lower and the Dow moved 0.25 percent lower at midday.
Easing inflationary pressures in Germany added the good news from the U.S. Inflation in Europe's biggest economy slowed to 2.1 percent year-to -year in September from 2.6 percent in August, meaning the European Central Bank has additional room to cut interest rates. The ECB, which sets interest rates for the 12-nation euro zone, has an inflation target of 2 percent.
The ECB has been criticized for not cutting interest rates as growth in the euro zone wanes. The U.S. Federal Reserve has trimmed rates eight times to boost sluggish growth and to compensate for the terrorist attacks on New York and Washington.
Interest-sensitive banking stocks led gains. Barclays (BARC), Britain's fourth-biggest bank, France's second-largest bank Societe Generale (PGLE), and Germany's Commerzbank (FCBK) all posted solid gains..
Throughout the Continent, insurers jumped 4.2 percent, financials climbed 3.8 percent, banks rose 3.6 percent, and consumer cyclicals moved 3.6 percent higher.
Banking stocks typically rise as borrowing costs become cheaper and borrowers are less likely to default on loans.
Media stocks came under pressure after AOL Time Warner (AOL: Research, Estimates), the world's biggest media company and parent of CNNfn, said Monday earnings per share this year will be lower than previous expectations, due to the Sept. 11 terrorist attacks and the advertising market slowdown.
EMI Group (EMI), the world's third-largest recorded music company by sales, plunged almost 34 percent after saying it expects a 20 percent drop in full-year pre-tax profit.
In Amsterdam, the AEX rose 2.43 percent and the SMI in Zurich moved 3 percent higher. Milan's MIB30 index climbed 2.5 percent. 
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