European shares gained one per cent yesterday, cutting the previous day's losses by more than half as investors expected limited economic impact from bomb blasts in London that killed more than 50 people.

Oil groups such as BP, Total and Eni rose between two and three per cent and had the biggest influence on the market as they tracked higher oil prices.

Thursday's London attacks were seen having little impact on the global economy including industries such as tourism, insurers and retailers. As a result, crude oil headed back towards record highs at $61.40 a barrel, recovering from steep losses.

By 1100 GMT, the pan-European FTSEurofirst index was up 1.1 per cent or 12.5 points at 1,148.7 points, after Thursday's 1.8 per cent or 21-point fall.

All sectors in Europe gained yesterday. The broader market index is within striking distance of three-year highs last week and still up 10 per cent so far this year.

"Markets have done very well over the last two to three weeks, and in many ways yesterday's fall was almost like a pause for breath," said James Laing, a pan-European fund manager at Aberdeen Asset Management.

Transport and leisure stocks such as Lufthansaand France's Accor bounced after being among the sectors worst-hit in the previous session.

"Despite recovering this poise, it seems likely that there will be a degree of nervousness persisting for some time on the back of this horrible reminder of the proximity of terrorism," said Richard Reid, European equity market economist at Citigroup.

Financial markets are eyeing the monthly US jobs data due at 1230 GMT, which will provide some clues on the likely pace of interest rate hikes in the world's largest economy.

Economists expect that 188,000 jobs were created in June, a big jump from the previous month.