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PARIS (Reuters) - European stock markets ended higher on Tuesday as tensions eased in the banking sector and hopes grew that the Federal Reserve would opt for a limited rate hike after two days of debate.

In Paris, the CAC 40 gained 1.42% to 7,112.91 points. The British Footsie advanced by 1.79% and the German Dax by 1.75%.

At the time of closing in Europe, the main Wall Street indices were also in the green, with the Dow Jones gaining 0.53%, the Standard & Poor's 500 0.71% and the Nasdaq Composite 0.87%.

The Fed's Monetary Policy Committee is due to publish its conclusions on Wednesday evening, and markets are widely anticipating a rate hike limited to a quarter point, given the upheavals experienced by banks in recent days.

"A 50 basis point hike would be too much in this environment, but a status quo could be interpreted as the Fed knowing something we don't," said Daniel Lenz at DZ Bank. "That's why, despite inflation and the problems facing the US, we expect rates to rise by 25 points."

Calm seems to have returned to global equities after two tumultuous weeks in reaction to the collapse of a number of US regional banks and the woes of Credit Suisse. The rescue of the latter by its rival UBS and a series of measures taken by the authorities on both sides of the Atlantic have allayed fears of large-scale destabilization of the financial system.

In a reassuring move, Treasury Secretary Janet Yellen said she was ready to intervene to protect the customers of small US banks in the event of difficulties, to avoid an SVB-style scenario.

VALUES IN EUROPE

The European banking index jumped 3.79%, the biggest sector increase. In Paris, Credit Agricole, BNP Paribas and Société Générale gained between 2.25% and 4.30%.

Thyssenkrupp gained 4.48%, as sources indicated that several groups, including the CVC fund, were interested in the German conglomerate's steel business.

BOND YIELDS regain ground after falling sharply during Monday's trading session. The ten-year German Bund closed at 2.277%, while the two-year was up 26 basis points at 2.578%, its biggest daily rise since September 2008.

The US ten-year gained almost nine basis points to 3.5771%.

FOREIGN EXCHANGE On the foreign exchange market, the dollar was unchanged against a basket of reference currencies. The euro gained 0.49% to around $1.0772.

OIL

Like equities, the oil market continues to rebound, with Brent crude up 0.73% to $74.33 and US light crude up 1.24% to $68.48.

(Laetitia Volga, edited by Jean-Stéphane Brosse)