European stocks up as rate worries ease, oil falls

European share indexes rose more than one per cent yesterday, boosted by tame US inflation data, while mining and metal stocks surged.

A sharp fall in oil prices lent support, with US light crude sliding more than two per cent to below $48 a barrel after US weekly reserves data showed a larger-than-expected rise in crude inventories.

Compass Group bucked the firmer trend, slipping 5.7 per cent after the UK-based caterer posted a fall in first-half profits and as investors reacted negatively to detail from a strategic review.

By 1530 GMT, the FTSEurofirst 300 index of European blue chips unofficially closed up 12.8 points or 1.2 per cent at 1,087.2 points, its largest one-day points gain since October last year that took the index to a one-month peak.

The DJ Euro Stoxx 50 index rose 1.7 per cent to 3,033.9 points.

Indexes have struggled to make headway for much of this year as investors grapple with concerns about rising US interest rates and slower global growth, despite strong company profits.

"In an international context, I don't think valuations are a problem," said Juliet Cohn, a fund manager at Principal Global Investors Europe.

"If you look at the results announced in Europe, you've seen a fair number of results that have been at least as good as expectations."

Selected companies in some sectors had also been making some encouraging comments, she added, highlighting the positive reaction to new cancer drugs from Roche.

Roche extended recent gains to touch a four-year high before closing up 0.7 per cent at 147.9 Swiss francs.

Around Europe, London's FTSE 100 closed 1.1 per cent higher, while Paris's CAC-40 and Frankfurt's DAX both ended up 1.7 per cent. In Zurich, the SMI closed 0.9 per cent higher.

In New York, the blue-chip Dow Jones industrial average was 0.8 per cent firmer at 10,414.5 points, while the Nasdaq Composite Index rose 0.8 per cent to 2,019.9 points.

Data showing core US inflation was steady in April helped lift stocks and government bonds as investors bet the Federal Reserve would not have to raise interest rates sharply to curb price pressures.

Earlier, minutes from the Bank of England's May rate setting meeting showed just one member of the Monetary Policy Committee had voted for a rate rise, adding weight to arguments that the next move may be a cut.

While lower interest rates are positive for stocks, the implications were that the global economy was not as robust as had been expected, according to some analysts.

"We still think perceptions for future growth are too high," said Teun Draaisma, a European strategist at Morgan Stanley.

"We think there will be more disappointment in terms of growth prospects and that is really what it's about - the slowdown, the impact of higher rates and higher oil."