European shares bounced yesterday off their lowest levels since December 2005, as investors took advantage of the recent slide to snap up shares in mining and construction shares despite a lingering cautious tone.
Arcelor jumped after Mittal Steel said it had started talks, while Merck gained after raising its stake in Schering. Club Mediterranee sank after Accor sold most of its stake.
The pan-European FTSEurofirst 300 index ended officially up 1.7 per cent at 1,276.3 points, but closed down 2.8 per cent for the week and was flat for the year-to-date.
The index is now around 10 per cent below its near five-year high of 1,407.5 points hit a month ago.
Despite the day's bounce, market watchers warn the positive move could prove short-lived with more downside likely as interest rate and global growth concerns persist.
"With many asset markets still holding on to most of their gains since 2003, the risks are tilted in the direction of further falls," said ING Group Chief Economist Mark Cliffe.
"Data surprises, fresh geo-political shocks or policy mistakes, perceived or actual could all trigger over-reactions in the current jittery mood in the markets," he said in a note.
London's FTSE 100 index closed up 1.7 per cent at 5,655.2, rallying after Thursday's 143-point fall, which sliced some £35 billion off the value of the index.
Frankfurt's DAX added 1.5 per cent, while Paris's CAC 40 gained 1.8 per cent.
Miners led the march up as investors flocked back into a sector that has dived 24 per cent in the past month alone, as gold and copper prices bounced back.
BHP Billiton rose 3.3 per cent, Rio Tinto added 3 per cent and Anglo American rallied 4.9 per cent.
"Despite the recent easing... we find little grounds for renewed optimism on mining stocks," SG analyst Luc Pez said in a note. "We see risks ahead, namely as the worst-case macroeconomic scenario has further gained traction."
Also in the resource sector, takeover target Arcelor jumped five per cent after Mittal said it has started talks but had no plan to further increase its unsolicited offer.
Energy stocks helped drive gains as crude prices climbed above $71 a barrel, with BP up 1.5 per cent and Royal Dutch Shell up 2.2 per cent.
Technology issues stood out after Texas Instruments raised its outlook for second-quarter earnings and revenue above market expectations on strong demand. Nokia added 2.5 per cent, while Ericsson gained 2.3 per cent.
Elsewhere in the sector, British software firm Misys leapt 21 per cent after saying it had received a request from members of senior management about making a possible offer.
Construction stocks also gained, with France's Eiffage up 7.1 per cent, Saint Gobain 4.7 per cent higher and Lafarge ending up 4.2 per cent.
Among healthcare stocks, Merck added 2 per cent after raising its Schering stake to just over 10 per cent, threatening Bayer's takeover bid.