European banking shares were mainly higher early Friday, as results of stress tests on U.S. banks overnight spurred investor hopes that the worst of the global financial crisis could be nearing an end.

Some of the initial reaction in European banks appear muted as much of the stress-test results had already been leaked to the U.S. media in the past few days.

At 0740 GMT, key banks were higher, with Lloyds Banking Group PLC (LYG) up 6.5%, Deutsche Bank AG (DB) up 3%, BNP Paribas SA (BNP.FR) up 2.9%, Standard Chartered PLC (STAN.LN) up 2.5% and Banco Santander SA (SAN.MC) up 2.3%. UBS AG (UBS) and Credit Suisse Group (CS) were up 2.4% and 3%, respectively.

The FTSE 350 Bank index was up 2.9%, while the Stoxx Euro 600 Banks index was up 2.6%.

The gains follow a marked rise in the past two months and the index levels are already higher than at the start of the year.

On Thursday, the U.S. Treasury Department directed 10 of the nation's 19 biggest banks to boost their capital levels by a combined $75 billion.

The Treasury released the much-anticipated results late Thursday, with Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and GMAC LLC being instructed to raise the most capital. JPMorgan Chase & Co. (JPM), American Express Co. (AXP) and Goldman Sachs Group Inc. (GS) were among the financial institutions deemed to not need fresh capital.

Meanwhile, banks began announcing plans to raise cash Thursday.

Treasury Secretary Timothy Geithner said he was "reasonably confident" the banks could raise the needed capital.

Federal Reserve Chairman Ben Bernanke said the results should provide "considerable comfort" about the health of the banking system.

In reaction, analysts are divided on how results of the stress-testing translate to European rivals, many of whom have tapped shareholders and strategic investors for capital as well after major write-downs and losses.

European investors have already largely rooted out European banks with skimpy capital positions because, unlike in the U.S., regulators here have been using equity Tier 1 ratios as a solvency measure for some time, Keefe, Bruyette & Woods said.

"The market has been using equity Tier 1 ratios as a measure of solvency for European banks throughout the crisis and the market is therefore well briefed on those banks with thin ratios," KBW analyst Andrew Stimpson said.

Applying similar guidelines as U.S. regulators have to European banks, Stimpson said only six European banks would need to raise capital to meet the minimum: Commerzbank AG (CBK.XE), Danske Bank (DANSKE.KO), Swedbank (SWED-A.SK), Bank of Ireland (IRE), Allied Irish Bank (AIB), and Banco Popolare (BP.MI).

To be sure, many banks will need more capital as a buffer, but are likely to spend coming years doing so by paying shareholders less through crimping dividends and share buybacks, KBW said.

Analysts at UBS are far more cautious, arguing that European banks lag behind their U.S. rivals because responsibility for is scattered.

"Unlike the U.S., there is no major policy initiative to recapitalize banks in Europe while the impairment cycle is lagging the U.S. by 9-12 months with Eastern Europe likely to be major drag on the banking system," UBS analyst Philip Finch said.

As a result, UBS lifted its rating on U.S. banks to neutral from underweight; European ones remain at underweight on what Finch calls limited progress on recapitalizing.

-By Vladimir Guevarra, Dow Jones Newswires, Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com