Questions over the recovery in the global economy wiped out modest rises for European stocks yesterday afternoon despite a good performance from technology firms like Nokia after an overnight rally in the US.
Data showing confidence among US consumers was yet to improve sent a shiver through markets, although the figures were broadly in line with expectations.
The University of Michigan's sentiment index for August fell to 90.2 compared to the final July reading of 90.9, but while the figures were enough to erase early gains on Wall Street economists were not disturbed.
"Consumer sentiment is holding up not too bad," said ING global economist James Knightley. "Combined with some other strong data we have been getting, it bodes well for the US economy to continue to recover in the months ahead."
A higher-than-expected reading from the German ZEW institute's expectations indicator showed the mood in Europe's largest economy was turning for the better.
By 1455 GMT, the FTSE Eurotop 300 index of pan European blue chips was up 0.3 per cent at 904.4 points, while the DJ Euro Stoxx 50 index rose 0.5 per cent to 2,587.
In New York, the Dow Jones industrial average was up 0.2 per cent at 9,435 points, while the Nasdaq Composite Index was 0.7 per cent higher at 1,752.
Stronger economic data has hammered bond yields in recent weeks but signs of less volatility has been a positive for corporates worried by potential for higher costs of borrowing.
"I think the key short-term event has been the stabilisation of the bond market and the appreciation of the dollar. Both of those events have allowed equities to move higher again," Merrill Lynch European strategist Michael Hartnett said.
European equities could move up another five per cent or so and then stabilise again, he added.
Companies most highly exposed to a pick up in economic conditions were among the biggest gainers yesterday.
"The first quarter was about defensive stocks, the second quarter was about high beta stocks and the story of the third quarter is growth stocks and cyclicals," Hartnett said.
Luxury goods makers LMVH and Richemont gained 2.1 and 2.5 per cent respectively and chip-related stocks rose after gains in their United States-listed peers on Monday.
Engineers Siemens and ABB rose on hopes they could pick up some lucrative US energy contracts following last week's massive power outage.
Finnish telecom equipment titan Nokia rose 4.0 per cent, helped by Deutsche Bank raising its price target, while Dutch food retailer Ahold jumped 8.8 per cent after its new chief said he would unveil a strategy for the indebted group early next month.
Vestas Wind, Europe's leading wind turbine maker, soared 19 per cent after its first-half profit beat expectations, while British property firm Canary Wharf rose 7.2 per cent on talk of a possible bid.