European stocks advanced for the second straight day yesterday, pushed by a rise in heavyweight oil shares which tracked rising crude prices, while Britain's Diageo lost 1.2 per cent after a muted trading outlook.

French utility Suez was the biggest blue-chip gainer, up 3.8 per cent at €16.6 following a return to first-half net profit, aided by gains from asset sales and cost cuts. It also confirmed its full-year growth targets.

Other winners included France's Carrefour, up 2.3 per cent at a five-month high of €41.8, helped by broker upgrades a day after the retailer pleased investors with pledges for a dividend hike and a share buyback.

The FTSE Eurotop 300 index of pan-European blue chips ended 0.4 per cent higher at 981.1 points - a near one-month high. The index has risen nearly five per cent from new 2004 lows struck in mid-August but in lacklustre volumes.

"There doesn't seem to be enough conviction that this rally is going to stretch too much unless we get some good news from the payrolls number," said a trader at a European brokerage.

Financial markets are closely watching the US payrolls report for August due today since it could influence the Federal Reserve's stance on interest rates.

The DJ Euro Stoxx 50 index rallied 0.7 per cent to 2,711.2 points.

Strategists said corporate earnings remained solid but markets were waiting for key economic reports to help clear some uncertainty on the macro picture.

"Economic data coming out has mostly been lacklustre and slightly below consensus," said Jacob de Tusch-Lec, European equity strategist at Merrill Lynch.

"There seems to be a lot of cash waiting on the sidelines."

The market shrugged off a widely expected decision by the European Central Bank to hold its benchmark interest rate at its record low of 2.0 per cent amid strong oil prices.

Around Europe, London's FTSE 100 rose 0.37 per cent, Paris's CAC-40 rallied 0.56 per cent and Frankfurt's DAX added 0.4 per cent.

The energy sector was among the top performers as higher crude prices stoked investor expectations of strong oil company profits.

Royal Dutch rose 1.1 per cent in Amsterdam while Shell added 1.3 per cent. BP gained 0.45 per cent and France's Total advanced 0.6 per cent.

Strategists at CSFB raised their recommended oil sector weighting for fund managers to five per cent "overweight" from benchmark and increased price targets for key oil stocks after lifting forecasts for crude prices.

"We are revising up our oil price assumptions for the medium and long-term to reflect continued tightness in the oil market, primarily driven by much higher than expected demand growth," CSFB said.

US light crude rose $1 per barrel to $45.1 a barrel yesterday, adding to gains of near $2 made in the last session in the wake of weaker-than-expected US crude-inventory data.

Strategists said weaker-than-expected US jobs growth could prompt Federal Reserve Chairman Alan Greenspan to slow interest rate hikes and that might give a boost to equities.

"How Greenspan reacts to tomorrow's number will be key," said James Knightley, global economist at ING Barings.

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