European shares closed up more than one per cent yesterday as a sharp fall in crude oil prices eased fears that energy costs will hurt economic growth and corporate margins, while solid earnings boosted Nordic telecoms firm TeliaSonera.

Economically sensitive technology stocks led the way higher, tracking hefty gains on Wall Street for a second straight session.

The FTSEurofirst 300 index of pan-European blue chips closed 1.2 per cent higher at 995.1 points, its biggest one day gain since the start of the month.

Turnover was solid at around €2.6 billion while rising stocks outnumbered those that fell by about five to one.

The narrower DJ Euro Stoxx 50 index rose 1.7 per cent to 2,787.2 points.

Gains were broad-based but analysts said investors are taking a more cautious and defensive stance.

"Institutional investors continue to reduce both market and economic-based risk," fund manager State Street said in a note.

"In recent weeks we have underlined the fact that investors are unwinding cyclical risk in industries like construction materials and industrials, and in turn moving toward safer sectors like utilities."

The DJ Stoxx utilities index is the top performing sector in Europe this year, its 17 per cent rise far exceeding the gain of about four per cent in the broad Stoxx 600.

The oil and gas sector has been the third-best performer in Europe this year, buoyed a 70 per cent rise in crude prices which has fed margins for oil companies.

But US light crude tumbled 2.5 per cent yesterday after US weekly oil supplies data showed a bigger than expected rise in crude stocks.

Royal Dutch/Shell climbed 2.9 per cent to 423 3/4p ahead of what are expected to be bumper third-quarter results today, while Norway's Statoil rose 1.1 per cent after posting a 32 per cent rise in quarterly operating profits.

Food and beverage stocks underperformed after Anglo-Dutch consumer products giant Unilever warned that restoring profitable growth would cost it more in marketing and restructuring, highlighting the challenges in the cut-throat sector.

"Visibility (on earnings) is low, management's capabilities are being questioned a bit at the moment so there isn't any reason for investors to buy the shares at this point in time," one Amsterdam-based trader said.

Unilever shares closed 0.6 per cent firmer, while Swiss rival Nestle slipped 0.3 per cent.

US consumer products giant Proctor & Gamble also disappointed investors by not raising its outlook. P&G shares were down 3.6 per cent in a strong US market.

The blue-chip Dow Jones industrial average was up 0.6 per cent at 9,945.6 points and the Nasdaq Composite Index rose 1.4 per cent to 1,955.3 points by 1616 GMT.

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