European share markets meandered to a steady close yesterday as dealers squared their books on the last full trading day before Christmas, while a fresh record high in the euro capped sentiment after recent equity gains.

Dutch retailer Ahold was a standout, adding 2.7 per cent to €5.71 after agreeing to sell two US food retail chains for $660 million.

The FTSEurofirst 300 index of pan-European blue chips closed unchanged at 1,041.3 points, having traded in a very narrow, four-point range throughout the day.

The DJ Euro Stoxx 50 index ended 0.5 per cent higher at 2,950.9 points.

The broad DJ Stoxx 600 Index is heading to the end of the year sitting on an annual gain of almost 10 per cent.

"We have been bullish and continue to be reasonably optimistic because we think valuations in Europe in particular are relatively low, and earnings growth in Europe should continue next year, even if the rate of growth will be a lot slower than the last couple of years," said Ian Scott, a European equity strategist at Lehman Brothers.

Lehman is recommending overweight positions in insurance, telecoms, media, technology and healthcare.

"Our forecast is for an 11 per cent return on a pan-European basis," Mr Scott said.

One threat seen to European corporate earnings and stock performance is the persistent strength in the euro, which hit a fresh record high against the dollar above $1.35 yesterday.

"I think the currency element will come home to roost in the first couple of quarters of next year, through either translation of foreign earnings back into euros, or through a genuine fall in demand for European exports," said Mike Turner, head of global strategy at Aberdeen Asset Management.