European shares rallied to their highest level for a month yesterday, spurred by gains in mining and technology stocks as investors took heart from signs US inflationary concerns may be starting to wane.

Among major movers, Bayer jumped after the drug and chemical group sold its diagnostics unit to Siemens, while Greece's National Bank rallied after completing a rights issue.

"If you can find someone who cannot see any value or growth in these markets, I'd say check his pulse, because there is value and there is growth," said Victor Polak, a portfolio manager at Citigroup's wealth advisory unit.

"It's just finding the right stocks that distinguish you from the index. This market is really for those who are not easily deterred as it's been a bumpy ride."

The pan-European FTSEurofirst index of 300 leading shares closed up 1.4 per cent at 1,313.6 points, its highest close since May 30.

The European index rose 2.3 per cent in the week but fell more than four per cent for the second quarter, ending a run of six straight quarterly gains.

The index remains around seven per cent below its near five-year high of 1,407.5 in May after markets were rattled by uncertainty over when the Federal Reserve might pause and worries over the effect on global growth.

"Liquidity is still sufficient at the moment to support the market. Investors will come back. M&A at the same time is removing money from the market, so that will support the market to some extent," said Kepler strategist Edmund Shing. Investors got support from a tame US inflation figure, which boosted expectations the Fed may be close to ending its rate-tightening cycle. The core US PCE index rose a moderate 0.2 per cent in May.

Mining stocks gained, with BHP Billiton closing up 1.8 per cent and Anglo American adding 2.5 per cent as copper rose sharply.

Steelmaker Arcelor gained 0.6 per cent after its shareholders voted to reject a merger with Russia's Severstal, clearing the way for a takeover by Mittal Steel.

Bayer led the gains in chemical stocks, adding 4.5 per cent after Siemens bought its diagnostics unit for 4.2 billion euros. Siemens shares closed up 0.8 per cent.

Among technology stocks, handset maker Nokia ended up 3.3 per cent, while Ericsson gained three per cent, followed by a 2.5 per cent rise in ASML as the sector tracked Asian technology stock gains.

Elsewhere, oil producers rose, with Total up 2.6 per cent and Royal Dutch Shell up one per cent as crude oil headed towards $74 a barrel, within sight of its record highs.

Greece's National Bank ranked as one of the day's biggest gainers, adding 8.8 per cent after completing a mammoth rights issue to fund its purchase of Turkey's Finansbank.

On the downside, Norsk Hydro fell 2.4 per cent after cutting its 2006 oil and gas output target by about five per cent to 585,000 barrels of oil equivalent per day due to production shortfalls.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.