European blue chips spurted upwards yesterday as reports some Iraqi troops were surrendering prompted bets the war will be short, with Germany's Bayer in the lead after it scored a victory in court.
"Stocks popped higher on the back of the US announcement that 2,500 crack Iraqi troops had surrendered. A few hedge funds bought on the assumption Baghdad, the main obstacle to the war finishing quickly, will be easier for the US to take," said a London-based pan-European equity trader.
"Some long-term investors are dipping into the market but their risk tolerance is low and they are unwilling to chase the market higher," she added.
Gains were capped by mounting evidence war in Iraq is weighing on demand for products such as software and weighing on paper prices.
"We're seeing demand falling off and a market which is holding its breath, watching developments in Iraq," said Robert Sellar, a fund manager at Aberdeen Asset Management.
Shares in Germany's Bayer rallied after the company won a second US lawsuit, raising hopes that liabilities from its recalled cholesterol drug Baycol may not be as high as expected.
Bayer shares were up 4.7 per cent at 14.02 euros at 1121 GMT, outperforming the DJ Stoxx European chemicals sector which was up 2.7 per cent.
In the technology sector, Europe's biggest software group, SAP, fell after US peer PeopleSoft said its first-quarter earnings and revenues would fall short of Wall Street's view as the war in Iraq delayed corporate buying.
Forestry and paper stocks sank after a warning from Finland's UPM-Kymmene that it expected first quarter profit to halve.
By 1101 GMT, the FTSE Eurotop 300 index was 1.04 per cent firmer at 795 points. The narrower DJ Euro Stoxx 50 index added 1.52 per cent to 2,216 points.
The Middle East dominated the market's attention as US forces swarmed over Baghdad's airport yesterday in the first ground attack of the war on Iraq's capital. Shares in Europe are up two per cent so far this week as investors bet that the war is in its final stages.
"War is heading in one direction and US troops seem to have got to Baghdad quicker than thought, but the economic data is weaker than expected. The market is torn between the two," said Rupert Thompson, global equity strategist at E*Trade Securities.
"US payrolls are the wild card today and the risk must be skewed to the downside, though the market must be fully aware of that given the data out in the past week. If we get a bad figure, people will say the Federal Reserve may be forced to cut interest rates," Thompson said.
Analysts are concerned that seasonal adjustment factors used by the US Department of Labor increase the odds that the March payrolls report, due at 1330 GMT, could be surprisingly weak.
Economists polled by Reuters have forecast a drop of 29,000 in US payrolls last month.
Shares in Dutch financial services group ING Groep fell nearly 0.8 per cent after it said that it saw no signs of a pick-up in economic growth.
ING, which repeated that the solvency of its insurance unit was holding up well, said in a presentation to investors: "All indicators point to continued economic weakness."
STMicroelectronics, the world's fourth largest chipmaker, posted preliminary first-quarter results that fell short of targets due to falling product prices and currency fluctuations.
Shares in the Franco-Italian group fell 2.9 per cent. Meanwhile shares in Spanish satellite pay-TV company Sogecable jumped 10.3 per cent after a government competition watchdog approved its merger with Via Digital late on Thursday.
Spain's top media group Prisa, which holds a 21 per cent stake in Sogecable, rose 5.5 per cent.