European shares ended yesterday at a level last seen in May 2002, led higher by firm oil stocks such as Total, but disappointing news from Volkswagen and Carrefour held back the market's gains.
British retailers stood out after earnings updates by Marks & Spencer and Burberry pleased investors, with car exporters such as DaimlerChrysler also helping after better-than-expected US trade data spurred the dollar.
Banca Intesa rallied 4.5 per cent after Italy's biggest bank predicted a 50-per cent rise in net profit by 2007, and Dutch chip equipment maker ASML rose 2.2 per cent as forecast-beating results offset disappointing order intake.
A broker upgrade of International Business Machines further bolstered sentiment in the technology sector.
The FTSEurofirst 300 index of pan-European blue chips ended 0.58 per cent higher at 1,159.54 points, its highest close in more than three years - bringing gains since the start of the year to 11.3 per cent.
German car giant Volkswagen capped the market's march upwards, however, shedding 2.8 per cent amid disappointment that an update on savings targets did not include new cost cuts.
"Investors had speculated that Volkswagen would announce fresh measures today," said a dealer in Frankfurt.
Carrefour was another soft spot as below-forecast quarterly sales and glum comments on a "very challenging" business environment sent shares in the world's second-biggest retailer, and those of rival Casino, more than two per cent lower.
Oil prices firmly above $60 a barrel in the wake of data showing an unexpected drop in US crude oil inventories slightly capped investors' enthusiasm.
Investors also stayed relatively cautious before key US data releases on inflation and retail sales later this week as they sought clues on the strength of the world's biggest economy and future monetary policy.
"US inflation and retail sales data may offer further direction, however, and any sharp rises here could suggest that the Fed(eral Reserve)'s stance on monetary policy still needs some work," said Paul Webb, trader at CMC Group in London.
"It's shaping up to be something of a mixed week for stocks and as long as we hold close to these three-year highs, the prospect of a sell-off can't be ignored."
But the market was still well in the black for now. Gainers included Tomra, up 8.6 per cent after the Norwegian recycling-machinery maker treated investors to strong operating profits and plans to sell its troubled Brazilian operations, while forecast-topping earnings and a raised outlook lifted top bearings maker SKF by 7.3 per cent.
Also on the upside, HBOS and Northern Rock climbed two per cent and 1.3 per cent, respectively, after Goldman upgraded them to "outperform", citing the prospect of interest-rate cuts, solid interim results and robust loan growth underpinning UK banks.
Across Europe, Paris's CAC 40 closed 0.7 per cent higher, with Frankfurt's DAX and London's FTSE 100 both up 0.6 per cent. In New York, the Dow Jones industrial average added 0.4 per cent and the tech-heavy Nasdaq Composite Index gained 0.1 per cent.