Europe finishes up

LONDON, England (Reuters) -- European stocks ended higher Friday, despite a potential terrorist attack in London and weakness in the banking and mining sectors. Concerns over interest rates continued to nag at investors after the Federal Reserve signaled that inflationary pressures remain a concern.

A stretch of road near Buckingham Palace in London was closed due to a suspicious vehicle hours after a bomb was found in a car parked in a nearby entertainment district, police said. A second suspicious car was found near Buckingham Palace. London shares fell on the news, although the French and German exchanges remained higher.

Among major movers, Swatch rallied after a ratings upgrade, while Cap Gemini added to Thursday's gains on on talk India's Infosys Technologies planned to bid.

"The overriding feature is the concern on interest rates, but the supporting features are earnings and valuations. It's right to be still positive on the markets," said Mike Lenhoff, chief strategist at Brewin Dolphin.

"The fundamental position for equity markets is pretty solid. In the short run, I think we're just going see the markets consolidate until they feel a little happier with where central banks will take interest rates."

The FTSEurofirst 300 index of top European shares was up 0.19 percent on the last trading day of the first half of the year, after rising earlier to a high of 1,601.80, its peak for the week.

The benchmark index has gained 7 percent in the first half and 5.3 percent in the second quarter, but suffered choppiness first in the face of higher bond yields and then over worries U.S. subprime mortgages and hedge fund problems could hurt credit markets. European shares rose 16 percent last year.

"We continue to be constructive on European equities, with companies getting into new markets and restructuring," said Michala Marcussen, chief strategist at SG Asset Management.

"For the second half, we're not wildly bullish but expect a 4 percent rise, which is a fairly good number once you've added dividends to it."

The Fed kept interest rates unchanged on Thursday but reduced the chance of an interest rate cut as it flagged persistent price pressures.

Interest-rate sensitive banking stocks weighed on the European market, with Barclays down 1.8 percent, while UBS fell 1.4 percent

Mining stocks were also weaker despite copper prices ticking higher, with BHP Billiton and Anglo American both down 1.1 percent.

Building stocks slid as HSBC lowered its price target on some real estate firms, with Segro down 4 percent, Liberty International 3.2 percent lower and British Land shedding 2.6 percent.

Index heavyweight oil shares were supported by a 1 percent rise in the price of crude to over $71 a barrel. BP, Total and Royal Dutch Shell all gained 0.7 to 0.8 percent.

Air Liquide led chemical stocks higher, adding 1.6 percent on market talk of a leveraged buyout offer for the company, while Linde added 1.7 percent despite analysts playing down speculation of a takeover bid.

Elsewhere, Swiss watchmaker Swatch rose 2.1 percent on a Deutsche Bank upgrade to "buy" from "hold," while Cap Gemini added 1.3 percent as talk persisted that India's Infosys could be looking to make a bid.

From wire and staff reports.