Europe stocks close higher as miners extend gains

European shares closed higher yesterday after a mixed day of trade, with further gains by mining and oil stocks helping make the difference as commodity prices stay strong.

A complicated round of corporate reshuffling hurt shares in defence firms EADS and Thales and had threatened to keep stocks in the red before an afternoon rally.

The pan-European FTSEurofirst 300 index of leading shares unofficially closed up 0.3 per cent at 1,378.5 points, having fallen as low as 1,369.89.

The index has been pushed to near five-year highs thanks to a boom in takeover activity and surging commodity prices boosting basic resources stocks.

Miners jumped again with Rio Tinto up three per cent and BHP Billiton climbing 2.2 per cent as Merrill Lynch raised its price target on the stocks and copper and zinc hit record highs.

Basic resources was Europe's top performing sector last year and is again so far this year, up around 25 per cent.

"They (commodities) are more and more in vogue. This cycle... is 15 years away from the peak. We should no longer think of the world as emerged or emerging, we should think 'has it commodities or not'," said David Murrin, chief investment officer at UK-based Emergent Asset Management.

He was speaking at the Reuters Hedge Funds and Private Equity Summit.

A heavier-then expected fall in US gasoline stockpiles forced US light crude up over half a per cent to $66.65 and gave further impetus to European energy firms.

Shares in BP had already risen after the company signalled a pickup in its refining business.

The US inventory data had the opposite effect in New York, sending the Dow Jones industrial average lower on worries over the impact of higher energy costs on big industrial firms.

Murrin said he thought oil would rise above $80 a barrel in the next few months.

France's Thales dropped 2.5 per cent after striking a long-awaited 1.6 billion satellite deal with Alcatel, which will see the telecom equipment maker transfer its satellites activities in return for cash and a higher stake.

Traders said the Alcatel deal eliminated the probability of EADS making a bid for Thales.

EADS sank 4.4 per cent after Lagardere and DaimlerChrysler said they planned to cut their stakes in the aerospace and defence group, which had been campaigning to swap its own satellite unit for a stake in Thales. Shares in Lagardere, a French media-to-defence conglomerate, rose 3.7 per cent while carmaker DaimlerChrysler gained 1.9 per cent.

On the downside, EasyJet tumbled 8.1 per cent after Icelandic investment group FL sold its 16.9 per cent stake in British no-frills air carrier through a share placement.

UK bank group Alliance & Leicester dropped 4.3 per cent as it traded ex-dividend.

The European Central Bank and Bank of England announce interest rate decisions today, and while no change is expected from either, economists are forecasting hawkish comments from ECB President Jean-Claude Trichet.