European stocks closed firmer yesterday as exporters such as automaker DaimlerChrysler took heart from a weaker euro but indexes again failed to make fresh 2004 highs.

Drugmakers dipped after recent strong gains, while British supermarket giant Tesco also suffered a bout of profit-taking despite reporting soaring profits and brushing off concerns of a grocery price war.

Auto stocks powered higher, buoyed by a slide in the euro, which tested 2004 lows around $1.19 on renewed confidence that a rise in US interest rates is on the way.

A stronger dollar is good for European exporters, making them more competitive against global rivals and increasing dollar-denominated earnings when translated back into euros.

DaimlerChrysler gained 2.8 per cent after US rival General Motors reported better-than-expected earnings and raised its outlook for the year, partly to reflect a strengthening US market.

Analysts are confident European companies will deliver another strong year of earnings improvement.

"If we get revenue growth in Europe for the first time since 2001, as we forecast, then operational leverage will likely lead to an upward revision to earnings growth," said Credit Suisse First Boston strategist Nick Nelson.

"In addition, going forward the macro backdrop may improve further with the currency becoming less of a drag on European earnings, and the euro zone economy gaining from some of the renewed strength in the global economy."

The FTSE Eurotop 300 index of pan-European blue chips closed 0.6 per cent higher at 1,022.2 points, having failed for a second time to hurdle the 20-month high of 1,028 points reached on March 8.