Cheaper oil, GSK underpin European stocks

European shares neared fresh three-year highs by mid-yesterday, helped by slightly lower oil prices, a weaker euro that buoyed car exporters and a positive broker note on drugs heavyweight GlaxoSmithKline.

Cortefiel was another gainer after two private equity firms launched a €1.44 billion ($1.8 billion) counterbid for the Spanish retailer, sending its shares up 3.6 per cent.

At 1030 GMT, the FTSEurofirst 300 index was 0.4 per cent higher at 1,143.5 points, a whisker away from last Friday's multi-year high of 1,145.88 points and putting at nearly 10 per cent gains for the year so far.

Basic producers bucked the rising trend, however, amid worries about oversupply problems. Investment bank CSFB urged short-term caution on the steel sector and cut ThyssenKrupp to "underperform" from "neutral", skimming two per cent off the stock. Rival Arcelor shed 2.2 per cent. Oil prices have become again a dampener of sentiment on equity markets after a surge to near fresh record highs of almost $60 a barrel rekindled worries about the impact of high energy prices on consumer spending and corporate profits.

Yesterday, oil speculators took profits from a four-day rally, sending US light, sweet crude for July 45 cents lower to $58.92 a barrel, but the potential for supply disruptions in a market already fearing a winter fuel crunch was expected to keep prices near $60 a barrel.

This and uncertainties about the quality of forthcoming half-year earnings in the United States may prompt investors to lock in part of the 8 per cent gains of the past two months, said Eric Mijot, head of equity research and strategy at SG Asset Management.

"We've seen a very nice rally that was underpinned by rather solid fundamentals, and we are in theory in a position to set new highs, but there are a number of near-term uncertainties that could trigger a small market correction," Mijot said.