European shares closed more than one per cent higher yesterday as a sharp fall in oil prices offset further weakness in the dollar, while hopes of consolidation added to gains in Italian telecoms stocks.
US light crude tumbled more than three per cent to $47.50 a barrel after weekly US data showed a large rise in fuel reserves, easing concerns about winter shortages.
Sentiment was also bolstered by better-than-expected growth in US consumer spending in October, and a pick up in US factory output last month, which reassured investors about the health of the US economy. Data from the UK also pointed to strong growth in manufacturing, boosting the pound.
By 1631 GMT, the FTSEurofirst 300 index of pan-European blue chips was unofficially closed 1.1 per cent higher at 1,034.5 points, six points below the 28-month highs touched last month.
Turnover was moderate at around €2.5 billion, while stocks that rose outnumbered those that fell by more than three to one. The narrower DJ Euro Stoxx 50 index rose 1.2 per cent to 2,910.9 points.
Strategists at ABN AMRO said European stocks look attractive going into 2005, with supportive valuations and interest rates unlikely to cause problems.
"We expect a 10 per cent return in European equities next year, with much of the performance coming in the first quarter," said Lars Kreckel, an ABN European equity strategist.
Earnings growth and increased liquidity, in part driven by a rise in risk appetite, should help drive gains, he added.
Markets largely ignored the dollar sliding to another all-time low against the euro. The European currency peaked at $1.3335 - up 13.5 cents since the end of August.
"Markets have performed surprisingly well despite concerns about currencies and the like. There seems to be money flowing into the markets in Europe, irrespective of the fundamentals," said Yoon Chou Chong, head of pan-European equities at Aberdeen Asset Management.
He agreed valuations remained undemanding and said results had been reasonable but company managers remained cautious, suggesting little reason for a strong bull run.
"Investors are caught in a bit of a muddle. There are the currency fears (for exporters) but the domestic sector is not particularly attractive because of weak demand."