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LONDON, England (CNN) -- European markets ended mostly higher on Tuesday as investors looked past gloomy results in the financial sector and focused on positive numbers from retail and drug companies and a strong start on Wall Street.

London's FTSE 100 rose 1 percent to 3,729.5 and the CAC 40 blue chip index in Paris gained 2 percent to 2,938.63, while Frankfurt's electronically traded Xetra Dax was up 0.5 percent to 2,723.53 in late trading (the German market was set to close at 1900 GMT).

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was up 0.9 percent.

Markets initially fell on negative financial news from two of the sector's biggest names.

Switzerland's biggest bank UBS fell 5.6 percent to 60.90 francs after it posted a bigger-than-expected fourth-quarter loss of 101 million Swiss francs ($74 million) as it spent money to scrap the Paine Webber brand. It said it saw no improvement to its financial position because of global political concerns. (Full story)

Reuters (RTR) fell 11.7 percent to 136.63 pence after it made a net loss of 394 million ($631 million), the biggest in its 151-year history. It also said it would cut 3,000 jobs. (Full story)

However, markets later rose as investors found reason to cheer corporate results from two other sectors.

France's second-biggest drugmaker Sanofi-Synthelabo (PSAN) rose 9.2 percent to 48.90 euros after it posted a sharp rise in 2002 earnings and forecast strong growth in 2003. (Full story)

Retailers were led higher by Kingfisher (KGF), Europe's leading home improvements retailer. Its shares rose 18.2 percent to 225 pence after reporting better-than-expected fourth-quarter sales and said profits this year would be slightly ahead of current forecasts. (Full story)

In addition to corporate results, however, investors mulled over developments in the European Union and United Nations policy on Iraq. The U.S. and Britain are looking at ways to get the Security Council to support a new resolution on Iraq after EU leaders gave their first joint warning that force could be used as a last resort. (Full story)

"It is positive for markets because EU leaders are now united in pursuing a diplomatic solution to their disagreement with Iraq,'' said Delta Lloyd Securities' de Mesure.

In Germany, investors were also digesting a survey by the ZEW institute, which showed many investors expect the country's economy to pick up but remain weak this year. The institute's expectations indicator rose to plus 15 in February. (Full story)

"The figure is positive but you need to see more numbers like this to start to dispel concerns about structural lethargy in Europe," Matthew Wickens, global economist at ABN AMRO, told Reuters.

But fund managers maintained that the market was poised for a relief rally if there was a quick resolution to the Iraq crisis.

"In the short term if there is a favourable resolution to Iraq which involves disarmament or Saddam going, that would lead a relief rally in the high-beta (more market-sensitive) stocks,'' Richard Champion, a European fund manager at Pavilion Asset Management, told Reuters.

"I would expect some of the solid names to come through in the longer term, but this all depends on whether the short-term relief reinforces itself through greater confidence and more investment through to revenues and profits,'' Champion said.

In Europe's smaller markets, Milan's MIB30 index rose 1.6 percent and the AEX index in Amsterdam was up 0.9 percent, while the SMI in Zurich lost 1.2 percent.

In the U.S. on Monday, markets extended a rally that began on Friday before the President's Day holiday on Monday.

At 1500 GMT, the Dow Jones industrial average was up 134.87 points to 8,043.67 and the Nasdaq composite added 22.23 points to 1,332.40, while the S&P 500 index gained 13.27 points to 848.16.l

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