European shares rallied across-the-board yesterday, spurred by gains on Wall Street as oil prices slid to new six-month lows, and ahead of a Federal Reserve meeting, which is not expected to change interest rates.

The DJ Stoxx technology sector index, the worst performer so far this year, topped the day's gainers with a 1.7 per cent jump, with SAP and Atos rising after results from Oracle topped analysts' estimates.

The pan-European FTSEurofirst 300 index closed 1.1 per cent stronger at 1,380.9 points, its strongest close since September 4. The index is about two per cent below near-five-year highs struck in May, and up eight per cent so far this year.

"It's just one of those days when markets are latching onto any bit of positive news," said a dealer at a fund management firm. The Federal Reserve was expected to keep interest rates unchanged at 5.25 per cent, and markets expect the central bank to renew inflation warnings and deliver an assessment of cooler economic growth. Among the day's gainers, banking stocks rose after upbeat results from Morgan Stanley. Societe Generale, BNP Paribas and Deutsche Bank gained between two and 2.4 per cent. By the close of European trading hours, the Dow Jones industrial average was up 0.6 per cent, and the tech-laced Nasdaq advanced 1.5 per cent. Traders said the outlook for company earnings was supported by a fall in US crude oil prices, which were down 1.4 per cent at $60.8 a barrel, having touched $60.6, the lowest since March 21.

The FTSE 100 index, which has a large weighting of oil stocks rose 0.6 per cent and underperformed other markets in Europe. Frankfurt's DAX gained 1.4 per cent, and Paris's CAC-40 advanced 1.5 per cent.

European shares are expected to show more modest gains next year after an expected 10 per cent rise in 2006, with defensive sectors leading the way as earnings growth begins to cool, a poll showed yesterday.