Pan-European share indexes jumped more than one per cent to three-year highs yesterday, boosted by a weaker euro and US data that soothed fears of aggressive interest rate rises there.
BP, up two per cent, Total, up 1.4 per cent, and Royal Dutch, up 2.4 per cent, were the biggest positive influence on indexes as crude prices hit a three-week high and the dollar continued to firm.
The FTSEurofirst 300 index of pan-European blue chips ended 1.4 per cent higher at 1,120.6 points, its highest since June 2002.
Every sector in Europe posted gains, helped by Wall Street's solid performance after the US Institute of Supply Management's manufacturing index showed a slowdown in factory activity last month, calming worries about inflation and interest rates.
"What it does do is put a shot across the Fed's bows that maybe growth perceptions are slowing to such an extent that the Fed may have to pause in its rate-tightening plans," said David Brown, chief European economist at Bear Stearns.
The Eurofirst 300 posted its biggest monthly gain since October 2003 last month, boosted by improved economic data and solid earnings in both the US and Europe.
Technical analysts at Merrill Lynch said the healthy rebound in global stock markets last month had eased the threat for further declines after the sell-off in March and April.
"Moves to new yearly highs... once again focus the technical spotlight on resistance factors allied to the entire 2000-2003 bear markets, moves above which could trigger additional buying activity," Merrill said in a note.
The narrower DJ Euro Stoxx 50 index surged 1.6 per cent to 3,125.9 points.
The euro continued its slide, sinking to fresh 7-1/2 month lows against the dollar near $1.22 on continued political uncertainty and weak economic data.
Dutch voters looked set to follow French voters in rejecting the European Union Constitution, and there were media reports that the possible failure of European Monetary Union was discussed at a meeting attended by high-level German financial officials.
The weaker euro helped European manufacturers and exporters like chemicals companies, which have significant costs in euros and sales in dollars. BASF rose 2.1 per cent, while Bayer added 2.3 per cent.