European shares closed higher yesterday, lifted by robust energy stocks, but ended the first half of the year with a 20 per cent decline as a surge in crude prices underscored concerns over inflation, adding to worries about bank losses.
The FTSEurofirst 300 index of top European shares ended up 0.76 per cent at 1,201.36 points, having shed 10 per cent in June compared to a 0.38 per cent fall in the same month a year earlier.
Around Europe, the FTSE 100 index ended 1.7 per cent higher, the CAC-40 was up 0.9 per cent and the DAX ended 0.06 per cent lower.
The FTSEurofirst has now suffered four successive quarters of losses, and its 20 per cent decline in the first half compares with an 8.2-per cent gain in the first half of 2007.
Oil prices hit a fresh record above $143 a barrel, boosting heavyweight oil shares BP, Royal Dutch Shell and Total which gained between 2.4 and 3.2 per cent.
"We expected to see some dips this month and expect markets to remain volatile in the short term," senior equity strategist Markus Wallner at Commerzbank in Frankfurt said, adding that the biggest concern remained inflation.
"We cannot anticipate the further development of oil since there are so many different factors at work - demand and supply, speculation, a weaker dollar, and another risk factor is geopolitical," he added.
Among telecommunications groups, France Telecom soared 7.2 per cent after it walked away from its bid for TeliaSonera and indicated it may return cash to shareholders. TeliaSonera slumped 10 per cent.
In a note to clients, Dresdner Kleinwort raised its recommendation on France Telekom to "neutral", cautioning that "there is still a risk of FT doing a deal of some kind".
The speculation buoyed shares in KPN, up 2.3 per cent. British peer Vodafone rallied 5.3 per cent after announcing a deal with News Corp's MySpace under which footage from Vodafone-sponsored music events will be made available to users of the social networking website.
Food producers were also major gainers yesterday, with Cadbury adding 3.7 per cent, fully recovering all of last week's losses, while Swiss peer Nestle rose three per cent after its one-for-10 share split to increase liquidity took effect.
Another traditional safe-haven, pharmaceuticals, were also in demand with AstraZeneca up 1.9 per cent and Novartis 2.7 per cent ahead, while Roche rallied 5.1 per cent after it said its blockbuster cancer drug Avastin produced good results in a trial.
On the downside, banks remained the biggest losers by weight with UBS down 4.3 per cent, having hit a 10-year low amid fears of further losses and after sources with direct knowledge of the matter told Reuters last week that the Swiss bank might sell off the heart of its US wealth management business.