European shares close 2% up on Bernanke words

European shares closed 2 per cent up yesterday to snap a four-day losing streak after Federal Reserve Chairman Ben Bernanke said he expected US core inflation to decline, while technology shares also shone.

A broker upgrade boosted Finnish mobile handset maker Nokia , record second-quarter profit buoyed ASML and Ericsson shot up on reports it had won a large order.

Europe's FTSEurofirst 300 index of top shares closed 2.17 per cent up at 1,299.2, its biggest one-day gain since June 15.

The benchmark is still 8 per cent below a near five-year high hit on May 11 after a sell-off caused by inflation, earnings and geopolitical fears.

Mr Bernanke said in testimony prepared for delivery to the Senate Banking Committee that the Fed expected core inflation to decline in the coming quarters. His comments came after data showed an unexpectedly steep 0.3 per cent rise in US core consumer prices last month.

"The markets are in a mood to see some good news. The markets have been more worried about growth slowing down than they have inflation in the last month or so," said Andrew Bell, strategist at Rensburg Sheppards.

"What they want is a balancing act that shows the Fed is still alert to inflation and will take action if necessary to put rates up further but they're not blind to the slowdown in the economy."

Around Europe, Germany's DAX jumped 2.6 per cent, France's CAC 40 closed 2.4 per cent higher as the Dow Jones industrial average in New York leapt 1.4 per cent.

The UK's FTSE 100 rose 1.7 per cent, underperforming slightly after Bank of England Monetary Policy Committee minutes which showed a unanimous decision to keep rates on hold in July failed to totally dispel worries about strong inflation data from Tuesday.

Bourses were also boosted by the oil price slipping 2 per cent to $72 a barrel after weekly data showed US fuel inventories were bigger than expected. Oil giant BP was a rare heavyweight loser, down 0.5 per cent.

US crude had hit a record high of $78.40 on Friday on worries that Israel's assault on Hizbollah in Lebanon could spark a wider conflict in the oil-producing Middle East.

Technology shares led gainers, with the DJ Stoxx tech sector index jumping 4.3 per cent after recent woes.

Dutch chip equipment maker ASML added 6.4 per cent after a record quarterly profit well above analyst forecasts. ASML pleased investors with comments that the chip market continued to look healthy.