European shares closed up about one per cent yesterday after a benign US consumer prices report tempered concerns that interest rates will have to rise sharply to keep a lid on inflation.
Utilities were in favour, with French water and waste giant Suez climbing 2.5 per cent to €16.18 after Smith Barney raised its recommendation to "buy" from "hold".
German power firm E.ON rose 1.8 per cent and peer RWE gained 2.7 per cent after Morgan Stanley raised its price targets on both stocks, saying wholesale power price rises looked sustainable and cash returns to shareholders could grow.
The FTSE Eurotop 300 index of pan-European blue-chips closed 0.8 per cent higher at 997.6 points on still scant turnover of around €2.3 billion. Stocks rising outnumbered those that fell by almost five to one.
The narrower DJ Euro Stoxx 50 index rose one per cent to 2,785.7 points, recouping most of a loss in the previous session.
Uncertainty over the progress of interest rates and high oil prices have offset strong earnings and solid economic figures in recent months, keeping both buyers and sellers largely sidelined.
"I sense it is very directionless," Simon Hallett, a fund manager at Barings Asset Management said of the market. "Every time investors try and spot a trend and jump on it, they get stopped, so we are running portfolios quite neutral with respect to themes and sectors, just concentrating on finding the right stocks."
Deutsche Bank said its central scenario was for a soft landing in the US and Chinese economies, and for oil to retreat to around $30 a barrel.
"Such a scenario should be most supportive for equity markets, not that great for bonds and not very good at all for oil. However, the risks around this are considerable," the bank said in a note.
US inflation data was expected to support arguments for a gradual rise in interest rates rather than a more aggressive series of increases that some people have feared.
The consumer price index surged a greater-than-expected 0.6 per cent in May but, excluding volatile food and energy costs, core inflation rose just 0.2 per cent.
"The market had priced in a lot of Fed tightening risk," said Lena Komileva, global economist at Prebon Marshall Yamane.
"The risk has been arrested somewhat after the dovish CPI data," she said.
Comments from Federal Reserve Chairman Alan Greenspan bolstered this relatively benign view on rates and helped US two-year bonds stage their biggest rally in five months.
Greenspan told a Senate committee that the removal of accommodative monetary policy was very likely to be measured and that inflation was unlikely to be a serious concern ahead.
US stocks also took heart with the blue-chip Dow Jones industrial average up 0.7 per cent at 10,408.0 points, while the Nasdaq Composite Index rose 1.4 per cent to 1,998.4 points by 1610 GMT.
Around Europe, London's FTSE 100 closed up 0.6 per cent, while Zurich's SMI rose 0.7 per cent. Paris's CAC-40 and Frankfurt's DAX both closed one per cent higher.
Gains were broad-based but airline stocks stood out, rising as oil prices fell despite a blast near Iraq's main export terminal which cut exports to a virtual standstill.
British Airways rose 2.9 per cent, Air France gained 2.1 per cent and Germany's Lufthansa advanced 1.9 per cent.
On the downside, British house builders and mortgage lenders under-performed after Bank of England Governor Mervyn King warned that the chances of falls in house prices had increased.
Building firms Bellways, and Wilson Bowden both slipped more than three per cent while Britain's biggest mortgage lender, HBOS , fell one per cent.