European stocks end firmer as crude bolsters oils

Heavyweight oil groups kept European shares on an even keel to close firmer yesterday after a leap in US inflation fanned fears that several more US interest-rate hikes might lie ahead.

Total, Royal Dutch/Shell and ENI were among the top blue-chip gainers, buoyed by a rally in crude oil prices to well over $48 a barrel on expectations of possible Opec production cuts.

Mining stocks such as Anglo-American also fared well as the price of bellwether base metal copper hit a 16-year high on the London Metal Exchange and flirted with record peaks amid tight red metal supply. Lead and tin prices also rallied, with zinc near 7-1/4 year highs.

The FTSEurofirst 300 index closed unofficially up 0.14 per cent at 1,099.30 points - barely up on the week, though still 5.5 per cent ahead for the year.

The DJ Euro Stoxx 50 index ended unofficially up 0.14 per cent at 3,071.7 points.

Analysts said indexes were due for a pause after a month-long run-up to 32-month highs on solid earnings and company plans to hand back to investors billions of euros built up on their balance sheets.

"The major (indexes) will likely proceed on a near-term digestion phase into late February, but we do not see significant damage to the downside," Merrill Lynch brokerage said in a note.

Stock markets were briefly rattled by news that core US wholesale inflation rose 0.8 per cent in January, its fastest clip in six years.

Financial markets bet the Federal Reserve will continue to raise US interest rates well into 2005.

There was further dismay that US consumer sentiment, as measured by the University of Michigan index, eased in February, when it was expected to come in unchanged from January.

But bonds were hit harder than shares, which recovered their poise by the close.

"A number of clients we speak to who normally invest in bonds think there is not much value there, and so a lot of money has been going into equities instead," said James Carrick, an economist at ABN AMRO bank.

"Given the US economy looks strong, I would not be surprised if we get some other number that scares the market as well, such as payrolls. The Fed may have to change its language and become more concerned about inflation," Mr Carrick said.

Among the day's standouts, German drugs and chemicals group Merck KGaA rose 4.3 per cent to a new life high as analysts upgraded the stock following its forecast-beating fourth-quarter results on Thursday.

Global cosmetics leader L'Oreal rose 1.1 per cent as a batch of brokerage firms raised their target prices or ratings after the group announced a double-digit earnings gain and stock buyback on Thursday.

French food group Danone gained two per cent following an upgrade from Merrill Lynch. The company denied reports it was putting an end to its agreement with Coca-Cola on distributing its bottled water in the US.

On the downside, shares in French-Italian chipmaker STMicroelectronics shed 1.4 per cent after a report showed North American makers of microchip manufacturing equipment had seen orders drop 18 per cent in January from December levels.

On Wall Street, the Dow Jones industrial average was flat at 10,756 points, while the Nasdaq Composite gained 0.15 per cent to 2,064 points.

The US market is closed on Monday for Presidents Day.