Chemicals group Bayer led European shares to a firmer close yesterday but worries about persistently high oil prices and a lacklustre performance on Wall Street tempered gains.
GlaxoSmithKline also weighed as it fell 2.9 per cent to 1,111 pence after New York Attorney General Eliot Spitzer said he was suing the London-listed drugmaker for fraud over its anti-depressant, Paxil.
Fiat continued to motor ahead, however, adding 6.3 per cent to €6.38 on hopes of a quick turnaround for the Italian carmaker. The gains followed a near-five per cent rally on Tuesday, driven by the appointment of Sergio Marchionne as chief executive.
The FTSE Eurotop 300 index of pan-European blue chips closed 0.4 per cent firmer at 982.5 points, having touched an intraday high of 989.2 points, on thin turnover of around €2.5 billion.
The narrower DJ Euro Stoxx 50 index ended up 0.6 per cent at 2,730.2 points.
European markets sold off in April after hitting 22-month highs and have since been locked in choppy range-trading, weighed on by high oil prices and the worry of aggressive interest rate hikes by the US Federal Reserve.
Many analysts say those fears may have been overdone in the short-term, with earnings forecasts continuing to rise and expectations that crude prices will fall in the coming months.
"We think the market is set up for a relief rally, driven by the cyclical sectors that were (sold-off) the most aggressively over the last three months, such as mining and media," said Julien Garran, a strategist at ABN AMRO.
"The critical issue for us is how do you play that: Do you gear up into it or go use the rally to get more defensive going into Q4? Our view is clearly the latter."
While the next three months could be strong for stocks more exposed to the economic cycle, defensive sectors like oil, tobacco and utilities were likely to over-perform in the longer term as economic activity slowed, Mr Garran said.
Tomorrow's US non-farm payrolls data is keenly awaited for further indications on the extent and timing of a Fed rate hike.
"We think payrolls potentially could be over 300,000, which would be a positive for growth, but all it would mean is that the Fed would be panicking more to raise rates faster," one dealer said.
US oil hit a fresh record high yesterday of $42.45 a barrel, helping to send Europe's oil groups higher on the prospects of increased profits. BP closed up 1.4 per cent and Shell ended 0.4 per cent firmer.
An Opec meeting today is expected to endorse a decision to raise formal output limits but some members said they were already pumping more oil to try and help cool prices.