European shares closed firmer yesterday as Wall Street rallied and Europe's automakers followed the dollar higher but Italy's Parmalat shed nearly half its value as a financial crisis engulfed the food company.
Pan-European benchmarks hit year highs last week, buoyed by a series of strong data in both the US and Europe and improving corporate profitability.
But patchy US employment data, highlighted yesterday by a surprise rise in weekly initial jobless claims, and a desire to protect gains, have capped indexes in the lead up to Christmas.
"Volumes are drying up. Some people have been closing out their positions to try and lock in the positive performance we've had this year," said Kevin Lilley, a European fund manager at Royal London Asset Management.
"I'm still very positive on the market personally and I don't want to close out my positions. I'm running long cyclical - overweight virtually all cyclical sectors and underweight virtually all defensive sectors - and while the temptation is to neutralise those for the end of the year, the problem is I would be buying the same stocks on January 1."
Cyclical stocks have led markets from the six-year lows they plumbed in March but have underperformed in the past month or so as investors square their books or seek opportunities in sectors which have lagged the rally, such as telecoms.
The FTSE Eurotop 300 index of pan-European blue chips ended 0.5 per cent higher at 938 points on moderate turnover of €2.7 billion as rising stocks outnumbered decliners by around two-to-one.
The narrower DJ Euro Stoxx 50 index closed up 0.9 per cent at 2,685 points, near its highs for the session.
"As the economic recovery accelerates and continues to build a better head of steam, we should see the stock market rally gain more momentum," Bear Stearns said in a research note.
A second straight session of gains for the battered greenback provided some respite for European exporters and US dollar earners, which suffer from a strong euro.
Auto makers, highly exposed to the massive US market, were a major beneficiary despite data showing car sales in western Europe dipped in November. A 2.8 per cent rally for Volkswagen and a three per cent climb for BMW led the sector higher.
Having touched a life high of $1.2276 on Tuesday, the euro was last trading around $1.2150.
French chip maker STMicroelectronics helped tech stocks gain, rising 2.8 per cent after a senior official forecast the semiconductor industry to grow for the next two years.
Among the region's top bourses, London's FTSE 100 was the worst performer, closing down 0.1 per cent as retailers, banks and miners retreated.
Elsewhere, Paris's CAC-40 ended up 0.8 per cent, Zurich's SMI rose 1.1 per cent and Frankfurt's DAX closed one per cent higher.
In New York at 1651 GMT, the blue-chip Dow Jones industrial average was 0.6 per cent higher at 9,978 points, with retailers featuring after strong November sales data. The Nasdaq Composite Index rose 1.2 per cent to 1,928 points, spurred by upbeat forecasts from semiconductor firms.
In Europe, Parmalat dived as much as 50 per cent and closed down 47.7 per cent in very heavy trade after a three-day suspension on the stock was lifted.