DaimlerChrysler and its peers drove European shares higher yesterday to end a two-day decline and leave shares back near their 2004 peaks as investors shrugged off interest rate worries for now.
But Novartis fell two per cent to 56.2 Swiss francs as the Swiss drug firm said it would start merger talks with Franco-German Aventis to help it fight off a €46.5 billion bid from French Sanofi-Synthelabo.
If successful, Novartis would create the world's second biggest drug firm behind Pfizer of the United States.
Shares in Aventis jumped 4.8 per cent to €65.8, while Sanofi rose three per cent to €55.8.
The FTSE Eurotop 300 index ended up 0.5 per cent at 1,018.26 points, with nearly three issues rising for each one that fell, with volume strong at €2.7 billion.
The benchmark is just one per cent away from the 20-month high it reached in March after failing to push above this level several times since then as nagging doubts about when US interest rates are likely to rise dog investors.
The DJ Euro Stoxx 50 index gained 0.8 per cent to 2,877.65 points.
Investors were rattled earlier in the week after Federal Reserve Chairman Alan Greenspan signalled that the time of decades-low US interest rates was over as the US economy grows vigorously.
Although he showed no hurry to raise borrowing costs, the comments caused investors to sell stocks on Tuesday and Wednesday despite some strong earnings reports.
Attention turned back to earnings yesterday. "The fact that Greenspan is going to be putting rates up is not a surprise. It's a question of when rather than if and the background he describes is one ideal for equities," said Mark Tinker of Execution brokerage.
"There is no valuation problem in equities," Tinker said. Investors will become more selective in the stocks they choose, picking those like Ericsson that are building market share and punishing rivals like Nokia which has lost ground, he said.
A strong Wall Street also helped European shares push higher, with London's FTSE 100 index closing at a new 21-month high.
Auto stocks were strongest, the sector rising 2.3 per cent to a new high for the year as DaimlerChrysler rose 2.2 per cent to €36.
It was the sector's fifth up day in a row as the euro eased to a five-month low against the dollar, taking pressure off export earnings.
Meanwhile, supervisory board sources told Reuters that DaimlerChrysler is considering selling its 10 per cent stake in Hyundai Motor, worth an estimated €850 million.
Elsewhere in the sector, France's Renault gained 3.6 per cent to €63.7, BMW rose 2.3 per cent to €36.7, and Volkswagen was up two per cent at €38.8.
German software firm SAP reported its first quarterly rise in new licence revenues in almost three years, but the stock fell as sales in Europe, its core business, fell.
Shares in the world's biggest maker of business software ended down 0.6 per cent at €130.2.
British bank Abbey National fell 3.4 per cent to 420 pence after warning weak trading at its core retail banking business could hit full-year profits.
And in Finland, energy group Fortum jumped 6.3 per cent to an all-time high after its profits for the first three months topped even the most optimistic analysts' forecasts.
In New York, the blue-chip Dow Jones industrial average was 1.1 per cent higher at 10,436 points, while the Nasdaq Composite Index gained 1.4 per cent to 2,023 points.