European stocks advanced to a four-and-a-half year high yesterday as oil majors such as BP gained on a $1.50 rise in crude prices and with takeover speculation continuing to buoy the mining sector.
With US markets closed for a holiday, trading in Europe was on the thin side. The day's three most traded blue chips - Vodafone, Telecom Italia and Unicredito - recorded only around half of their average daily volumes over the past 30 sessions.
Some analysts said European corporate profit growth, while still healthy measured by fourth-quarter earnings reports in to date, might not remain so strong as to live up to consensus full-year 2006 expectations. Morgan Stanley, for one, advised investors to take profits in European stocks.
The FTSEurofirst 300 index of leading European shares ended unofficially at 1,345.64 points, up 0.21 per cent, having hit 1,346.53 points in intra-day trade - the highest since August 2001.
Performance across Europe was uneven with Milan, Zurich, London and Madrid up between 0.3 and 0.6 per cent, Frankfurt flat and Paris 0.4 per cent in the red.
Nigerian militants crippled oil production and threatened more violence in the world's eighth-largest exporter, fuelling crude prices and making oil and gas Europe's top sectoral winner with a gain of 1.2 per cent. BP rose 1.9 per cent and Royal Dutch Shell was up 0.7 per cent.
Shell said it had suspended 455,000 barrels per day of oil production after militants bombed a major export hub, kidnapped nine foreign contract workers and sabotaged pipelines.
Sector consolidation talk boosted mining shares with Rio Tinto up 2.7 per cent.
But shares in Lonmin slipped 2.2 per cent after a source close to gold producer Gold Fields said the company had not made a bid for Lonmin and was not in talks with the firm.
In pharmaceuticals, Schering, the world's largest maker of oral contraceptives by volume, rose 1.8 per cent on news of its biggest share buyback programme to date. Schering also raised its profitability targets after a 30 per cent rise in quarterly earnings.
"The buyback is certainly a positive for the shares, and the profitability target of 20 per cent is not bad given that Schering's product portfolio does not have many new drugs with high margins," said Equinet analyst Martin Possienke.
But shares in the world's third-biggest drug maker, France's Sanofi-Aventis, dropped three per cent after it received only partial US regulatory clearance for a key anti-obesity drug.
"Acomplia is the key pipeline drug and a delay is a clear setback for Sanofi-Aventis," Dresdner Kleinwort Wasserstein said in a research note.
Citigroup cut its rating on the stock to "sell" from "buy", while Oddo Securities trimmed its recommendation to "add" from "buy".
The telecoms sector came under pressure after JP Morgan downgraded Vodafone, Deutsche Telekom and TeliaSonera to underweight from neutral. The bank also downgraded British Telecom to neutral from overweight.