Deutsche Bank and mining companies lifted European shares yesterday, but indices were down for the week as the market's prolonged upswing to 30-month highs struggled to maintain momentum.
The FTSEurofirst 300 index ended up 0.47 per ent at 1,047.44 points, leaving it just 10 points or so below Monday's two-and-a-half- year high.
For the week, the pan-European benchmark was down 0.8 per cent as investors eyed crude oil prices at around six-week highs above $48 a barrel and as early scorecards in the new results season came in mixed.
"The relief rally that started in August last year is about three-quarters of the way through," said Morgan Stanley's European strategist, Teun Draaisma.
Investors should not get too carried away betting the five-month long rally will continue throughout this year, he added.
The European results season has yet to start in earnest, but after Monday's US market holiday, investors will scour outlooks from companies in the United States, where the reporting goes into high gear.
The DJ Euro Stoxx 50 index closed up 0.4 per cent at 2,948.22 points.
Apart from stronger oil prices, which increase costs for companies and consumers, investors are also bracing themselves for another US interest rate hike by the Federal Reserve early next month to make borrowing more expensive.
"We have an environment where the Fed is raising interest rates, GDP growth forecasts are lower than last year, profit expectations are declining and we have input prices still reasonably high," said Khuram Chaudhry, a European strategist at Merrill Lynch.
"Markets are likely to have a tough time because they respond to changes in GDP and profits, so it does suggest markets will be a bit weaker in 2005."
Deutsche Bank was Europe's top blue-chip gainer, up 2.5 per cent amid relief that Spanish peer LaCaixa had sold almost all of its 4.2 per cent stake in the German financial group to ease concerns about a stock overhang.
In the mining sector, Anglo-American gained 1.7 per cent after South Africa's biggest iron ore producer, Kumba Resources, in which Anglo has a majority stake, was reported to be demanding a 50 per cent hike in iron ore prices from consumers.
Shares in mining firm Rio Tinto, which has also reportedly presented customer Nippon Steel Group with a 50 per cent price hike, rose 2.3 per cent.
Metals groups Xstrata and BHP Billiton were 1.8 per cent and 3.7 per cent higher, respectively, while European steel company shares also firmed, despite the fact they may face higher prices for a key raw material.
On a downbeat note, German electronics components maker Epcos tumbled 6.3 per cent after it said there was a growing risk it would miss its target of raising sales and earnings this year, following first-quarter results that were below expectations.
Brokers turned bearish on the stock, though the picture in the technology sector was not universally bleak.
Shares in Philips Electronics and Ericsson climbed after top LCD maker and mobile phone giant Samsung Electronics predicted a turnaround in its fortunes.
"Samsung was extremely upbeat about 2005," said David Buik, a spokesman for Cantor Index.