European stocks end at 40-month highs, DAX rallies

European shares closed at new 40-month highs yesterday, powered by miners such as Anglo American, which rallied as gold hit 17-year highs.

The pan-European FTSEurofirst 300 index of blue chips rose 0.6 per cent to 1,213.9 points, its highest level since mid-May, 2002. The index rose for the third straight week, pushing gains to nearly 17 per cent so far this year.

Strength in oil shares including BP supported markets, with BP up one per cent as Deutsche Bank raised its oil price forecasts and upgraded its rating on the firm.

Across Europe, Frankfurt's 30-share DAX outperformed with a 1.6 per cent jump prior to tomorrow's election, as polls showed Conservative leader Angela Merkel's centre-right coalition was running slightly ahead of the other main parties.

"Even if a clear majority is not won, the investment case is not going to be destroyed," said Alan Zlatar, head of European equities asset management at Julius Baer, citing a slow rise in Germany's wage costs and restructuring efforts by companies.

"This is coming down to the bottom line and it is a cyclically oriented export market that is helped by stronger macro economics globally," he said.

Uncertainty over the result and its likely impact on keenly awaited corporate and economic reforms weighed on the DAX this week, however, as it eased about 0.4 per cent.

Exit polls in Germany tomorrow after voting closes, and an interest-rate decision by the Federal Reserve at 1815 GMT on Tuesday top next week's investment agenda for financial markets.

British shares closed at their highest levels in more than four years, led by strength in miners on bullish broker comments on the sector. London's blue chip FTSE 100 index rallied 0.45 per cent to 5,407.9 points.

Shares in Friends Provident advanced 3.5 per cent on persistent talk it could be a takeover target.

Among other gainers, Rio Tinto was up 3.8 per cent and oil firm Royal Dutch Shell put on 0.8 per cent. (Reuters)

"On the optimistic side we still see scope for significant positive earnings revisions in oil and gas, mining and industrials," ABN AMRO European strategists said in a note.

"In all three cases, consensus top and bottom line figures have been revised up throughout the year," they said.

"Our expectations are now much closer to consensus, but we believe there is still a bit more to go, which should also feed through to sector outperformance in the coming months."

US stocks were higher by the close of European markets as oil firm Exxon Mobil Corp and chipmaker Intel Corp got a lift from upgrades by brokers.

Standout gainers in the French market included food group Danone, which gained 2.3 per cent on renewed market talk it might be the subject of a takeover, this time by US food and beverage firms Kraft Foods or PepsiCo.

Paris's CAC-40 ended up 0.7 per cent higher while Zurich's SMI put on 0.8 per cent.