European stocks headed for a higher close yesterday, buoyed by a sharp rally in German drug and chemicals firm Bayer after a legal victory but oil firms underperformed as crude prices stayed under pressure.
Axa was another positive influence as investors applauded plans by France's largest insurer to expand its North American arm with the purchase of life insurer and money manager MONY Group for $1.5 billion. Axa closed 2.1 per cent higher.
By 1535 GMT, with most markets in Europe shut, the FTSE Eurotop 300 index of pan-European blue chips was 0.8 per cent higher at 924 points.
Stocks advancing outnumbered decliners by almost two to one, while volume was hefty at €2.9 billion ahead of today's witching - the expiry of futures and options on stocks and indexes.
The narrower DJ Euro Stoxx 50 index was up 0.9 per cent at 2,610 points.
While momentum and liquidity favoured further advances for stocks, the risk of a pull-back remained, analysts and fund managers said.
"The recovery plays are all looking expensive because people are now counting on a 2003 recovery rather than just 2004," said Nicholas Williams, a European fund manager at Singer & Friedlander Asset Management.
"I don't think anyone is expecting a significant improvement in third-quarter earnings but we might not see any improvement at all."
Having powered key European indexes to fresh 2003 highs earlier this month, cyclical stocks were now losing momentum, said Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London.
Smaller and mid-cap stocks had been leading the way but their run of outperformance was also starting to wane, he added.
"This is not to say that trouble is brewing for equities nor that investors feel the need to seek cover in more defensive sectors but the reality is that large funds can only sensibly invest large sums of money in large cap stocks."
Blue-chips in New York were firmer, with the Dow Jones industrial average up 0.8 per cent, while the Nasdaq Composite Index rose 0.6 per cent.
Around Europe, London and Zurich closed up 0.4 per cent, while Paris rose 0.6 per cent.
Frankfurt's volatile DAX powered 1.6 per cent higher in late trade.
Germany's Bayer rose 5.9 per cent, adding nearly €1 billion to its market value, after it won a legal victory over compensation claims relating to withdrawn cholesterol treatment, Baycol.
Among other leading stocks to rise, Telecom Italia closed 3.2 per cent firmer after the European Union's highest court ruled around €2 billion in fees the Italian state charged the telecom firm were illegal.
Takeover rumours buoyed shares in Anglo-Australian pallet supplier Brambles Industries, which finished 8.1 per cent higher, while Swiss insurer Baloise rallied 4.1 per cent on market talk that peer Zurich Financial was planning to sell its stake of around 27 per cent in Baloise.
Zurich had no comment on what it called "pure market rumour". Analysts said a sale could spark a takeover bid for Baloise.
On the downside, weak crude prices hit the heavily weighted energy sector, with Royal Dutch/Shell down 1.3 per cent, Total 1.2 per cent weaker and BP down 2.1 per cent on fears lower prices will crimp profits.
Oil prices hovered near four-month lows yesterday and are down around 10 per cent in the past two weeks as record imports boost US oil inventories.
Shares in French advertiser Havas fell nine per cent after its first-half earnings missed market expectations due to a weak European economy and US dollar.
Crisis-stricken French engineering firm Alstom was suspended from trade, along with one of the company's bonds as France railed against the European Commission's decision on Wednesday to block a state bail-out of the company.