European shares reversed their earlier losses to trade firmer yesterday afternoon, tracking a surge on Wall Street after the release of data showing growth in the US service picked up sharply in September.

The US Institute for Supply Management said its monthly non-manufacturing index rose to 53.9 in September from 50.9 in August, its eighth straight month of growth and above forecasts for a rise to 51.4.

"The concern is all about growth, so anything that shows that concern is slightly misplaced is going to have a positive reaction in the equity market," said Matthew Wickens, global economist at ABN AMRO bank.

The fear is that the US economy may be sliding back into recession.

"People will want to see tomorrow's payrolls numbers and won't rely on just one month's set of numbers. This is definitely not one for the double-dippers," Wickens said.

By 1420 GMT, the FTSE Eurotop 300 index of pan-European blue chips was up 0.4 per cent, having been down as much as 1.8 per cent at one point, while the narrower DJ Euro Stoxx 50 index was up 0.3 per cent.

On Wall Street, the Dow Jones industrial average was up 1.8 per cent and the tech-laced Nasdaq Composite added 0.5 per cent.

Chemical stocks were among the biggest gainers, drawing strength from DuPont Co., the largest US chemical company, which said it expected third quarter earnings to beat expectations.

The news came a day after rival Dow Chemicals warned of lower-than-expected earnings. Switzerland's Syngenta added 3.6 per cent and Germany's Bayer rose 2.6 per cent.

CS Group was under pressure after its profit warning on Wednesday and following overnight news that a US congressional committee said its investment banking unit CSFB offered privileged access to IPOs to former WorldCom head Bernard Ebbers.

Also weighing was news from Standard & Poor's that it may cut the Swiss bancassurer's credit ratings, after rival agency Fitch had cut its ratings outlook for the firm. The stock was the biggest faller in Europe, falling 10.9 per cent.