European stocks closed up one per cent yesterday, led by gains in financial heavyweights ING and Societe Generale after strong results, but US inflation data kept markets wary of rising interest rates.
E.ON, Germany's top utility, also advanced after reporting a forecast-beating rise in first-quarter earnings, although cigarette maker British American Tobacco fell after a US court ruling rattled the industry.
The FTSE Eurotop 300 index of pan-European blue chips closed 1.1 per cent higher at 980.0 points, its session high. Turnover was moderate at about €2.9 billion, and five stocks rose for every one that fell.
The narrower DJ Euro Stoxx 50 index gained 1.2 per cent to 2,711.5 points.
The Eurotop 300 has spent 2004 trapped within an 80-point range which topped at 1,030 points last month. Optimism over swelling profits has been offset first by doubts about the economic recovery, then by fears of higher interest rates.
"It's difficult to believe people are going to accept that (US) rate hikes are fully discounted at a stage when they haven't even started yet... so I think the market will certainly remain jittery at least until rate hikes start, and probably beyond," said Jason James, global strategist at HSBC.
"The other factors are oil prices and Iraq, and nothing is really improving on either of those fronts."
Crude oil held above $40 a barrel for the third straight day, while there was renewed fighting between US troops and militiamen in the Iraqi cities of Najaf and Kerbala.
US data showing that wholesale prices jumped last month reminded investors the Federal Reserve is likely to increase interest rates soon to tackle the threat of inflation.
Producer prices rose 0.7 per cent last month, more than double expectations, although excluding volatile food and energy costs, the rise was a modest 0.2 per cent.
Other data showed a bigger-than-forecast fall in April retail sales and a rise in weekly jobless claims.
"We know activity is strong, the retails sales trend is okay, and the labour market is showing clear signs of improving, so inflation is the key to whether the Fed goes in June or August," said James Knightley, an economist at ING Financial Markets.
Economists sounded a further note of caution, saying persistently high oil prices could trim almost a third of a percentage point off world economic output this year, according to a Reuters poll.
However, data showing the economies of Germany, the Netherlands and Italy grew faster than expected in the first quarter, following strong data from France on Wednesday, was seen as a positive for European stocks.
"We certainly think Europe is a lot cheaper than the US, and it is, in fact, our biggest overweight within global equities," HSBC's James said.
Around Europe, London's FTSE 100 closed 0.9 per cent higher, Zurich's SMI rose 1.2 per cent, and Frankfurt's DAX closed 1.3 per cent higher. In Paris, the CAC-40 ended up 1.4 per cent.
Dutch bancassurer ING rallied 5.5 per cent to €17.79 after first-quarter core profits jumped by a third, beating market expectations.
French bank Societe Generale, Italian peer Capitalia and British insurer Royal & Sun Alliance rounded out an impressive performance among financial service firms, all rising strongly after results.
SocGen closed 3.6 per cent higher, Royal & Sun jumped 7.7 per cent, and Capitalia rose 3.4 per cent.
E.ON ended 2.4 per cent higher at €54.75 after its results topped forecasts and it predicted double-digit profit growth in its core energy business.
Retailers were also firm, led by a 5.5 per cent gain for Next after the British clothing chain posted higher-than-forecast sales as it increased market share.
Tobacco firm BAT closed down one per cent at 811 pence after the Florida Supreme Court agreed to review an appeals court ruling overturning a $145 billion judgment against cigarette makers.
Deutsche Telekom also shed one per cent to €13.25 after saying a weak German economy hurt first-quarter earnings, limiting the impact of strong growth in its international mobile unit.
In New York, the blue-chip Dow Jones industrial average was 0.1 per cent firmer at 10,005.3 points, while the Nasdaq Composite Index was up 0.5 per cent at 1,934.4 points at 1616 GMT.