European stock indexes closed within striking distance of a new five-and-a-half-year high yesterday, boosted by strong technology stocks and signs or speculation of merger activity surrounding Volkswagen and Saint-Gobain.

An unexpected rise in manufacturing activity in New York State factories further underpinned sentiment, easing worries that a slowdown in the US economy would deepen.

The data also propped up the dollar, which in turn bolstered eurozone exporters such as DaimlerChrysler.

But the market's gains were capped by caution ahead of the release of minutes from the Federal Reserve's last policy-setting meeting, and by sharp losses in Deutsche Boerse and Euronext after the German exchange dropped a takeover bid.

The FTSEurofirst 300 index of top European shares gained 0.6 per cent to end at 1,470.83 points, slightly below a five-and-a-half year closing high of 1,471.66 hit last week and bringing to 15.2 per cent its overall gains since the start of the year.

Frankfurt's DAX and Paris's CAC closed at levels not seen since the first half of 2001.

Equity investors have taken comfort from recent US economic data showing tame inflation and a soft rather than hard landing for the world's biggest economy.

Comments by St Louis Fed President William Poole on Tuesday, that the odds of another US interest rate hike were about the same as a rate cut, also helped to ease worries that the Fed's drive to fend off inflation may add to US economic woes.