European shares closed at new three-year highs yesterday as data showing the US economy was growing at a sustainable pace complemented pleasing earnings from heavyweights such as Swiss drugmaker Novartis.
A solid performance on Wall Street and a cooling in red hot oil prices also lent support to indexes which shrugged off the impact of last week's bombings in London.
The FTSEurofirst 300 index of pan-European blue chips closed 0.5 per cent firmer at 1,165.4 points, its highest close since June 2002.
The narrower DJ Euro Stoxx 50 index rose 0.5 per cent to 3,277.2 points.
Stocks started strongly and extended their gains after a series of data showed continued growth in the world's largest economy, but scant evidence of over-heating.
US consumer prices were steady in June, below expectations, while retail sales growth of 1.7 per cent in the same month came in higher than economists' forecasts.
"Overall it's a good thing for the stock market, because all financial markets would rather see lower inflation than higher, but retail sales was an even better number for stocks," said Robert Macintosh, chief economist at Eaton Vance in Boston.
"Retail sales were quite strong, which bodes well for the average company out there."
The data dented the dollar and left government bonds little changed as markets assumed interest rates would continue to rise at no more than a measured pace.
With indexes continuing to advance through the traditionally quiet summer season, strategists are cautious on increasing their equity allocation at the expense of other assets.
"We're still taking a neutral asset-allocation view on equities and prefer to play our slightly more aggressive stance with our sector allocation and some specific themes," said Lars Kreckel, a strategist at ABN AMRO.
"We continue to be heavily overweight in the oil and gas sector... The sector is still very cheap - it still trades at a discount to the market and is also cheaper than it has been in the past couple of years."
Crude prices eased below $60 a barrel as the threat to production in the Gulf of Mexico from Hurricane Emily eased.
Another favourite sector for ABN AMRO is industrials.
"We think the industrials sector has unusually strong pricing powers compared to many other sectors, and is still attractively priced," Kreckel said.
In New York, the blue-chip Dow Jones industrial average was 0.7 per cent higher at 10,626.4 points, while the Nasdaq Composite Index rose 0.5 per cent to 2,153.9 points by 1611 GMT.
Better-than-expected earnings from Apple Computer and Advanced Micro Devices boosted the Nasdaq and provided a lift for European peers.
Chipmaker STMicro featured in a strong European technology sector, rising 2.9 per cent on hopes it will buy a stake in Korean peer Hynix in exchange for flash-memory chip production lines.
Rival Infineon gained 3.6 per cent, while chipmaker and electronics group Philips added 1.4 per cent after selling its stake in French IT consultancy Atos Origin for around €550 million.
Among Europe's top indexes, London's FTSE 100 closed 0.3 per cent higher, its highest since April 2002, while Paris's CAC-40 ended up 0.6 per cent, its best since May 2002.
Zurich's SMI rose 0.9 per cent, and Frankfurt's DAX closed 0.4 per cent firmer, both at their highest since June 2002. InBev, the world's biggest brewer by volume, rallied 3.8 per cent after posting a 5.5 per cent rise in first-half underlying beer sales.
Steel stocks enjoyed a technical bounce as investors looked for sectors that have underperformed as markets have rallied.