European shares rallied 1 per cent to close at a three-year high yesterday, lifted by news Siemens would sell its struggling mobile phone unit to Taiwan's BenQ, pushing up the German firm's stock 2.3 per cent.
The pan-European FTSEurofirst 300 index ended 1.2 per cent higher at 1,126.9 points - its best level since June 2002, with the index up eight per cent so far this year.
"At the moment, the support is not coming from the macro side, but from the companies themselves with their cost-cutting programmes and those focussed on markets abroad," said Matthias Grimm, a European fund manager at Cominvest.
"Although we have got a nice market in the first half of the year, companies are still cheap and some have gotten cheaper," he said, citing strong company earnings growth.
Cominvest favours industrials, financials and oil service companies such as oil rig developer Technip.
The FTSEurofirst index has rallied five per cent in the last three weeks as concerns over sharp interest rate hikes in the US eased and boosted markets.
Among the big gainers, France's Pernod Ricard rose six per cent to a record at €131.5 after Britain's Diageo lent support in Pernod's fight with US drinks group Constellation for Allied Domecq. Allied shares were flat.
Diageo rose three per cent as it agreed to buy most of Allied's Montana wines unit if the Pernod bid is successful, soothing worries Diaego will team up with Constellation and embark on a costly takeover battle.
Siemens was a big influence on the market and rallied after technology group BenQ agreed to take over its mobile phone unit.
"The exit comes late but is cleaner than most had expected. Most recently, the market believed that Siemens was favouring a joint venture rather than a full exit," Bear Stearns said in a note.
"In our view, the market was less concerned about the price of the unit than the timing of the exit itself, given that the mobile phones business has lost about €500 million over the past four quarters and lost significant market share as well."
Around Europe, London's FTSE 100 index closed 0.9 per cent firmer at a three-month high, led by gains in mobile firm 02 on renewed bid speculation.
Frankfurt's DAX rallied 1.5 per cent while both Paris' CAC-40 and Zurich's SMI rose 0.8 per cent.
The markets extended gains after US stock indexes rallied one per cent. Wall Street was supported by soothing comments from Federal Reserve Chairman Alan Greenspan that investors said suggested the central bank was nearing the end of its year-long campaign of interest rate hikes.
The euro edged up against the dollar after European Central Bank President Jean-Claude Trichet told Reuters he was not preparing for an interest rate cut, helping quell speculation after recent comments and weak euro zone data.