European equities led by heavily-weighted drugs and auto stocks ended yesterday mostly higher but mixed US data left investors in two minds over prospects of a sustained economic recovery.
Weak defensives such as utilities, and food and beverage stocks weighed on the market as investors took their profits on safe-haven issues to bet on more risky stocks with valuations considered more attractive.
A rally of about 30 per cent from mid-March's six-year lows has come to a halt in the past week amid fears that second-quarter earnings may disappoint expectations and as signs of an anticipated economic recovery remained patchy at best.
By 1600 GMT, and with only Frankfurt still officially trading, the FTSE Eurotop 300 index was up 0.6 per cent at 853 points while the DJ Euro Stoxx 50 index was flat at 2,420.
"I believe we are only at the beginning of a bullish trend, but a volatile one that will include periods of correction like the one we're in at the moment," said Olivier Garnier, global strategist at SocGen Assets Management in Paris.
Garnier said corporate fundamentals made healthier by restructuring; the prospect of low interest rates for the foreseeable future as central banks juggle with deflation risks; and signs of a soft recovery in the US economy supported a bullish sentiment.
But yesterday investors were in two minds about the scope and timing of a recovery as an unexpectedly gloomy report on the US labour showed the unemployment rate had shot up to a fresh nine-year high of 6.4 per cent in June.
Another report, however, warmed up sentiment a little as it showed the key US services sector had expanded sharply in June, jumping to its highest level since September 2000.
Nerves were also fraught in the run-up to second-quarter earnings reports as strategists warned that many of these may disappoint expectations and lead to new market corrections.
"The second quarter has been mediocre for many European companies," SocGen's Garnier said. "The risk is that markets could react in a knee-jerk way and equities may be dumped because things are not going in the rosy direction priced in by investors for the past three months.
Across Europe, Paris and London each closed 0.4 around per cent higher but Frankfurt was 0.3 per cent lower by 1600 GMT as in New York, the Dow Jones industrial average and the tech-laced Nasdaq Composite stayed 0.5 and 0.4 per cent weaker respectively.
It was another strong session for autos, with stocks such as DaimlerChrysler and Volkswagen extending a one-month rally, buoyed by a cheaper euro and figures suggesting that the worst effects on the industry of the economic slowdown were behind it.
French rivals Renault and Peugeot drove around one per cent higher each while auto parts maker Valeo made up for recent weakness, gaining 4.7 per cent amid hopes that rising demand for cars across the globe would boost suppliers' revenues.
The pharmaceutical sector was also shining, with stocks such as AstraZeneca gaining on hopes for a positive review of its most important new drug, Crestor, at a US regulatory panel meeting next week.
Smaller capitalisation Lafarge, the French buildings materials maker, surged 4.8 per cent after announcing the sale of a cement unit in Florida for $122 million.
On the downside, shares in no-frills air carrier Ryanair had their wings clipped, falling 6.6 per cent after it reported a drop in the proportion of seats it filled in June amid perceptions that full-service rivals might be recovering.