European shares ended firmer yesterday with brewer SABMiller up after it bowed out of a potentially costly bid battle, but retailer Marks & Spencer weighed after a lower-than-expected takeover approach.
Oil prices remained in the spotlight as crude prices fell after oil cartel Opec agreed to increase production and data showed US oil supplies increased in the latest week.
Marks & Spencer fell 2.7 per cent to 356 pence as the company rejected a bid plan from billionaire retail tycoon Philip Green.
Some investors were disappointed that Green, owner of the Bhs chain and Arcadia's eight fashion chains, did not offer more than an indicative 290-310 pence a share in cash plus a 25 per cent stake in a new listed company, well short of the nine billion pounds they had hoped for.
The FTSE Eurotop 300 index of pan-European blue chips closed 0.4 per cent firmer at 986.8 points on modest turnover of about e 2.7 billion.
The narrower DJ Euro Stoxx 50 index ended up 0.2 per cent at 2,736.7 points.
Stocks have been trapped in a tight range for the past two weeks as rising interest rates, high oil prices and questions about future growth in earnings dampens enthusiasm.
"We're still overweight in equities and underweight in bonds, as we have been for most of the last year," said Keith Wade, chief economist at fund manager Schroders.
"The problem at the moment is that equities have got all these worries and most people think bond yields are going to rise, so what do you do? You can go into cash but you're reluctant to do that for any length of time."
Oil markets initially shrugged off planned output increases agreed at a meeting of Opec oil producers in Beirut, but data showing a healthy rise in US inventories pushed light crude futures down $1.13 to $38.85 a barrel by 1616 GMT.
Opec said it had agreed to raise oil output by two million barrels a day from July 1, and by a further 500,000 barrels a day from August.
High oil prices threatened economic growth and were already feeding into inflation, Mr Wade said.
"As global growth accelerates, you have more of a risk that it becomes more ingrained into core inflation, wages and so on, which puts central banks in a difficult position."
The European Central Bank yesterday opted to leave rates steady at two per cent, as expected, taking more time to gauge the impact of the oil price spike.
Despite the concerns, a number of analysts say European shares now offer good value.
"Given that European stocks are forecast to generate more near-term revenues, and given that the market level remains roughly where it was at the start of this year, then we should probably expect most earnings-based valuation measures to suggest that the market as a whole is offering more value," Credit Suisse First Boston analysts said in a note.
Data showing the US service industry's rapid pace of growth slowed a touch in May did little to change expectations that the US Federal Reserve will soon raise interest rates to cool the economy and keep a lid on inflation.
The Institute of Supply Management's non-manufacturing index for May came in at 65.2, down from a record 68.4 in April and just short of Wall Street estimates for a dip to 66.0.
Markets are primed for a 25 basis-point rise from the Fed later this month, but today's non-farm payrolls are in focus to see if any changes in assumptions will need to be made.
Jobless data confirmed an improving labour market, with initial claims down at 339,000 for the latest week.
In New York, the blue-chip Dow Jones industrial average was steady at 10,267.2 points, while the Nasdaq Composite Index fell 0.6 per cent to 1,978.1 points.