European shares closed almost one per cent lower yesterday as a spike in the euro rekindled concerns about earnings growth, but merger and acquisition activity spurred gains in the construction sector.

Rising oil prices also dented sentiment, with US light crude up more than one per cent as production glitches knocked supplies and data showed a bigger-than-expected fall in US crude stocks. Oil prices reversed after most markets had closed.

French retailer Carrefour was one positive, gaining 2.1 per cent after reporting a pick-up in hypermarket sales in the fourth quarter.

The FTSEurofirst 300 index of pan-European blue chips ended 0.8 per cent lower at 1,038.6 points, its lowest close in three weeks. The Eurofirst 300 rose less than nine per cent last year despite European company earnings growing by their fastest in nearly a decade - about 27 per cent according to analysts' estimates.

"The market was held back in 2004 by politics and the oil price, the oil price being the barometer of political risk, and that's what has kept the risk premium high despite the fact that earnings have been very strong," said Gareth Evans, European equities strategist at ING Barings.