ABN AMRO bank and drug group GlaxoSmithKline led European shares to a new 29-month high yesterday when heavy merger activity also boosted investor confidence in the final trading days of the year.

The FTSEurofirst index ended unofficially up 0.5 per cent at 1,043 points, clocking up its best close since early July, 2002.

The pan-European blue-chip index is up 8.9 per cent so far in 2004 and poised to chalk up its second year of gains after a bruising three-year bear market. The DJ Euro Stoxx 50 index ended unofficially up 0.3 per cent at 2,930 points.

"The market has looked reasonable value for some time, but you are now seeing various merger and acquisition activity such as Danske Bank, and Deutsche Boerse approaching the London Stock Exchange, which makes people feel more confident going forward," said Andrea Williams of Royal London Asset Management.

On Monday, Deutsche Boerse offered 530 pence per share for the LSE, and a day later Denmark's Danske Bank bought two Irish banks.

LSE shares ended at 555-1/4p after hitting a new high of 565p as the market bet a counter-offer would come from rival bourse Euronext.

There were bid activity elsewhere as shares in British retailer GUS jumped 4.7 per cent on speculation a consortium is mulling an £11 billion bid.