Frankfurt - European stocks stormed ahead Wednesday on hopes of lower interest rates.

Amid expectations of the US Federal Reserve delivering another hefty cut in borrowing costs Wednesday, Europe's blue-chip Stoxx 50 climbed 7.8 per cent to 2222 after chalking up even bigger gains during the day.

The positive mood was reflected across national bourses with shares in London gaining more than 6 per cent and Paris jumping more than 7 per cent as the afternoon session drew to a close. Stocks in Zurich were up 5.40 per cent.

The European Central Bank is also expected to cut rates at its meeting set down for next week with the Bank of England, the Bank of Japan and the monetary authorities in Switzerland also moving towards trimming borrowing costs as part efforts to boost economic confidence.

In addition, the prospects of the Fed delivering a 50-basis points rate reduction helped to power the euro, which gained 1.7 per cent in late trading to reach nearly 1.30 dollars.

The oil price also rebounded on the global share rally with the price oil jumping by 5.7 per cent to 66.30 dollars as the European trading day got under way.

Shares in Frankfurt, however, were down about 0.7 per cent after luxury sports carmaker Porsche AG announced that it was moving to stabilize shares in Volkswagen AG. At one point, shares in Frankfurt tumbled by more than 6 per cent following Porsche's announcement.

In a statement, Porsche said that depending on the state of the market it planned "to settle hedging transactions in the amount of up to 5 per cent of ordinary Volkswagen shares."

The news that Porsche wanted to build up its stake in Volkswagen to 74.1 per cent have sent VW shares soaring this week and consequently helped to power ahead Frankfurt's key DAX index.

But after Volkswagen's shares jumped by 146 per cent in one day this week, Porsche's announcement Wednesday resulted in the VW share price dropping 36.5 per cent to 600 euros (762.24 dollars) in early trading.

Earlier in the week, the VW shares breached the 1,000-euro mark turning it into the world's most valuable company. (dpa)