European shares ended at their best level in 28 months yesterday as US core inflation data eased fears of sharply higher interest rates, while a new retreat in oil prices buoyed airlines.

Upbeat earnings and guidance from British cell phone service operator mm02 and robust US numbers on industrial production and housing starts, also helped offset worries about the negative impact of a record-high euro on exporters.

Swedish domestic appliance maker Electrolux was another standout stock, rallying six per cent as a media report singled it out as a possible takeover target by private equity firms.

Electrolux declined to comment on the report. The FTSEurofirst 300 index of pan-European blue chips gained 0.88 per cent to end at 1,036.2 points. The narrower DJ Euro Stoxx 50 index added 1.5 per cent to 2,922.2 points.

Shares in fuel-hungry airlines like Air France-KLM and Ryanair rose sharply as US government data showing crude oil stocks building for an eighth straight week ahead of winter helped US oil prices extend a 17-per cent fall from late-October's record high of $55.67 a barrel.

The new retreat helped calm worries over the impact of high energy prices on corporate profits and households' spending power.

Also helping underpin sentiment, economists said a 0.2 per cent rise in US core consumer inflation last month was due to the then sky-high oil prices and was unlikely to accelerate the Federal Reserve's pace of US interest rates rises.