Eurostocks end thin session firmer; Daimler rallies

European shares clambered to a higher finish yesterday lifted by a rise in auto stocks, such as DaimlerChrysler, and supported by safe-haven buying from investors positioning themselves for an uncertain year ahead.

Energy stocks, including BP, drew support from a rise in oil prices to fresh 15-month highs amid worries about a looming war in Iraq, and an uncertain economic and earnings outlook lured investors into defensives such as basic resources and food.

"The oil price is getting people slightly nervous about what it means for the economic recovery, but it's doing favours for oils and commodities," said Merrill Lynch European equity strategist Khuram Chaudhry.

"We're also seeing people moving into defensives partly as they look at how to position themselves going into next year," Chaudhry added.

By the 1630 GMT close, the FTSE Eurotop 300 index was up one per cent at 850.92 points, as the narrower DJ Stoxx 50 index rose 0.9 per cent to 2,386.41 points.

The benchmark index is set to end 2002 down about 33 per cent, having been dented by dismal company earnings, sluggish economic growth, US corporate scandals and geopolitical tensions in Iraq and North Korea during the year.

On Wall Street, the Dow Jones industrial average was down 0.3 per cent as the tech-laced Nasdaq Composite slipped 1.1 per cent.

Traders in Europe described volumes as paltry, with many investors already away for the New Year holiday tomorrow when all European financial markets will be closed.

Strategists said investors had favoured safe haven sectors on the day and would continue do so until there was some resolution on Iraq, and until there was some visibility on corporate earnings and the economic outlook in 2003.

Energy stocks were among the main beneficiaries, buoyed by a rise in oil prices, as traders bet on a US attack on Iraq early next year and as supplies from OPEC nation Venezuela remained cut off by a strike.

Heavyweight BP added 2.2 per cent, Italy's ENI rose 1.7 per cent and TotalFinaElf added 1.9 per cent. Near-dated Brent futures were trading up 1.7 per cent at $30.70.

The traditionally defensive food/beverage sector, basic resources and utilities also gained, with food leader Nestle up 2.1 per cent and UK drinks giant Diageo adding 2.8 per cent.

Among basic resources stocks, German steel and engineering group Thyssenkrupp added 6.2 per cent on reports that the Chinese government was close to deciding on a second Transrapid high speed railway, which it would help build.

In utilities, Spain's Iberdrola added 2.8 per cent, Germany's E.ON rose 0.8 per cent and Britain's Scottish & Southern Energy climbed 3.2 per cent.

Elsewhere, the auto sector was lifted by a 3.3 per cent rise in sector leader DaimlerChrysler.

The US-German carmaking giant was bolstered by news over the weekend that its Mercedes unit expects 2002 sales to have at least matched those of the previous year. Volkswagen and BMW drew comfort from the report and rose 2.9 per cent and 3.4 per cent respectively.

Gert Jan Geels, a fund manager at Amsterdam-based Eureffect, said that while investors were worrying about factors such as Iraq and high oil prices, stocks could be poised to rally if investors' worst fears did not materialise.

"If you take a look at Iraq, North Korea, oil and the dollar's move, it looks like the worst is priced in," he said.

"In my view, if any of these or all of these factors are not as bleak as people think they might be, we might see a relief rally.