LONDON (April 12): European shares rose on Wednesday, driven by gains in financial stocks and carmakers, as the first-quarter earnings season kicked off and a rise in the oil price underpinned energy stocks.

The pan-European STOXX 600 index was up 0.6% by 0900 GMT, having hit a fresh 16-month high earlier. Britain's mid-caps hit a fresh record high at 19,412.43 points, up 0.5%.

Earnings improvements are drawing US investors back to European equities after being net sellers for eleven consecutive months last year, UBS said in a note, highlighting accelerating inflows to European ETFs while US ETFs see modest outflows.

Ahead of first-quarter results season, earnings are expected to increase 7.1% year-on-year, according to Thomson Reuters I/B/E/S data. Seven of the ten sectors should see an improvement in earnings relative to 1Q 2016.

Auto stocks were the best performers, up 1.1%.

French auto parts manufacturer Faurecia gained 2.2% after it posted first-quarter sales up 10% to 4.23 billion euros. Deutsche Bank said strong results over consecutive semesters should feed through into a valuation which is one of the lowest in the sector.

German luxury carmaker Daimler gained 1.2% after it said first-quarter profits jumped 87% on strong Mercedes sales.

British aerospace and defence company Meggitt was a top riser after Bank of America Merrill Lynch upgraded the stock, citing an attractive cash growth story.

Norwegian fertilizer maker Yara was a top gainer after Goldman Sachs added the stock to its 'conviction list', raising it to a buy.

Dialog Semiconductor was the top European faller for a second day, down 3.9%. It fell 14% on Tuesday after an analyst report said its biggest client Apple could be seeking to ditch its power management supply (PMIC) in favour of creating the parts itself.

"Apple PMIC insourcing fears appear overdone for Dialog," said Deutsche Bank, reiterating a 'hold' rating on the stock.

Peer Austria Microsystem was a top-performing stock, up 5.5%. It had fallen 9.5% in the previous session on concerns around Apple suppliers.

Deutsche Bank analysts named AMS as one of their preferred stocks in the technology hardware sector. Several brokers said the weakness was a buying opportunity.

Britain's biggest retailer Tesco was a top faller, down 3.6% as analysts pointed to a few negatives in its full-year results, including slowdown in UK and Ireland margins.