European stocks started the new year with gains yesterday, led higher by aerospace group EADS and tech stocks such as Alcatel as upbeat US economic data kindled optimism about the economic recovery.
The rally was broad-based, with Europe's 18 stock sectors registering rises of between 2.1 per cent and 6.8 per cent as gainers beat decliners by almost 11-to-one.
Strategists noted though that volatility was high and volumes thin as many players were still away for the New Year break.
"I'm not sure we should make much of the market at the moment. It's cautious and will remain cautious until the upcoming conflict with Iraq," said Deutsche Bank European equity strategist Bernd Meyer.
The prospect of downgrades to consensus earnings estimates as well as expectations of sluggish economic growth also warranted a cautious stance, strategists said.
By 1630 GMT, with only Frankfurt still trading, the FTSE Eurotop 300 was up 3.1 per cent at 883 points. The narrower DJ Euro Stoxx 50 index jumped 5.3 per cent to 2,513 points.
EADS was among the leading gainers in Europe, climbing 11.8 per cent after budget airline EasyJet inked a previously announced contract worth an estimated $3 billion with the firm's aircraft manufacturing unit Airbus.
Elsewhere, Fiat jumped 9.6 per cent on talk of an eight billion euro rescue plan by entrepreneur Roberto Colaninno, a turnaround guru best known for his 1999 takeover of Telecom Italia.
Among other autos sector gainers, Volkswagen jumped 6.5 per cent and DaimlerChrysler added 5.7 per cent.
Energy stocks were lifted by a two per cent rise in oil prices after US data showed fuel supplies had fallen sharply as a result of a month-old strike in Venezuela, pushing US national crude oil stocks close to a 26-year low.
Crude prices are also being supported by fears of a disruption to supplies in the event of any US-led attack on Iraq. Preparations for a possible war continued as the US military ordered more than 11,000 desert-trained troops to begin heading to the Gulf.
Italian oil major ENI added 2.6 per cent and TotalFinaElf rose 0.8 per cent.