European shares crept to a two-month closing high yesterday, boosted by tech stocks and other sectors most exposed to the global economic cycle but trade was lacklustre with the United States on holiday.

Shares in German Internet provider T-Online surged 4.2 per cent on speculation parent company Deutsche Telekom might buy out minority shareholders, but Italy's Banca Intesa retreated 2.5 per cent after its half-year results failed to deliver the big positive surprise some investors had been looking for.

The FTSE Eurotop 300 index of pan-European blue chips closed 0.4 per cent firmer at 992.7 points, its highest closing level since July 2 and some 6.2 per cent above its 2004 low hit last month.

Stocks that rose outnumbered those that fell by almost three to one, on meagre turnover of around €1.6 billion .

The narrower DJ Euro Stoxx 50 index rose 0.3 per cent to 2,748.4 points.

Sectors that tend to benefit when economic growth is strongest, such as technology, automakers and media, outperformed.

Companies with stable earnings and limited growth prospects had been attracting investment on fears during the summer that the global economy was de-railing.

"Our view is that globally, the economy will slow, but more so in 2005 than this year," said Mike Turner, head of global strategy at Aberdeen Asset Management.

"After a strong first quarter, some people were worried things were petering out in Q2, but economies are like super-tankers - they take a long time to turn around."

Data on Friday showing US employers added 144,000 jobs to non-farm payrolls helped reassure investors that the global economic recovery, which has helped feed powerful profit growth, remains on track.

"Valuations are still very cheap, particularly in terms of cashflow," said Andrew Barker, a European strategist at UBS.

"Certainly, based on our information, we haven't seen a cashflow yield that is as cheap as this in the last 15 years. One of the big debates is how sustainable is that cashflow?"

Oil prices remained a threat, with some doubts that the recent fall from record peaks near $50 a barrel could be sustained, Mr Barker added.