European shares end at three-week high as oil retreats

European stocks rose yesterday to end near their best levels in three weeks, helped by a further retreat in oil prices, with airlines leading the rally.

Shares in Roche rose 2.5 per cent to 122.75 Swiss francs after the healthcare group filed for EU marketing approval for its key Tarceva drug.

The prospect of cheaper jet fuel helped airline stocks yesterday, with British Airways up 2.5 per cent, Lufthansa up four per cent, and no-frills carrier easyJet jumping 7.5 per cent.

The FTSE Eurotop 300 index of pan-European blue chips closed 0.9 per cent stronger at 974.2 points. The index advanced 0.3 per cent on Wednesday.

"This looks like a relief rally, as rising oil prices have been a big fear for the market," said Christophe Doney, Paris-based head of international strategy at Kepler Equities.

He said most European companies had come out with earnings suprises on the upside and, with economic growth picking up in the region, a further fall in oil prices could push markets to the top of their trading range.

The Eurotop index hit a new 2004 low of 934.72 points early last week as red-hot oil prices sparked investor concerns about the effect on corporate profits. The Eurotop has now rebounded four per cent from the lows.

US light crude dipped below $43 a barrel for the first time since early August as the commodity clocked up its fifth day of declines.

London's FTSE 100 rose 0.96 per cent, Frankfurt's DAX gained 1.1 per cent, Zurich's SMI added one per cent, and Paris's CAC-40 advanced 0.96 per cent.

"The markets have been reflecting a reasonable balance of concerns over rising interest rates and oil prices, with the fact that corporate earnings growth is coming through," said Richard Wiseman, head of European equities at Insight Investment, the investment arm of HBOS.

Dutch retailer Ahold sounded a sour note as it reported a weaker-than-expected second-quarter operating profit due to difficult conditions in the US.

Ahold also announced the resignation of its chairman for personal reasons. Ahold shares dropped 6.8 per cent to €5.3 on heavy volume, hitting their lowest level since May last year.

Elsewhere, Nestle eased 0.34 per cent after Merrill Lynch cut its rating on the stock to "neutral" from "buy", saying it did not believe that consensus forecasts fully reflect the cost-inflationary environment the company finds itself in.

"In the food-related areas, there has been pricing pressure and input cost pressure, which is a venomous combination," said Wiseman of Insight Investment.

Meanwhile, shares in financial group Fortis rose 1.34 per cent after the company beat earnings estimates and said it was more upbeat about 2004.

Bucking the trend, British security-to-pest-control firm Rentokil Initial fell 3.9 per cent after ruling out a break-up of the firm following a strategic review, squashing takeover speculation.

US stocks were little changed by noon yesterday as a retreat in oil prices boosted investor sentiment, but the technology-packed Nasdaq was lower after a brokerage cut its forecast on the semiconductor industry.