Upbeat insurers and drugmakers and a late-session rebound in the dollar helped European shares end yesterday at a level not seen for nearly two and a half years, while tumbling oil prices lifted airlines but hit energy stocks.
Solid growth in premium income spurred Swiss Life shares 4.6 per cent higher, while Scor rallied 6.3 per cent after influential US rating agency A.M. Best upgraded its outlook on various ratings for the French reinsurer.
Britain's United Utilities and Severn Trent were other bright spots, up by four to five per cent on hopes for bigger profits after an industry regulator recommended an 18 per cent rise in annual water bills.
The FTSEurofirst 300 index of pan-European blue chips added 0.36 per cent to endat 1,038.59 points, its best closing level since July 10, 2002, and just two points below the peak of 1,040.55 points touched last month.
The narrower DJ Euro Stoxx 50 index rose 0.46 per cent to a nine-month closing high of 2,926.73 points.
The dollar was a key focus again, slumping to a fresh record low against the euro before rising broadly late into the European session as some traders viewed it as oversold.
Some traders had feared the euro could break above the $1.3383 peak it set in the morning after the European Central Bank surprised financial markets by revealing it had considered raising interest rates even as the euro zone economy slows.
"With (euro zone economic) growth expected below trend for the fourth consecutive year and inflation expected to fall below the medium-term target over the next couple of quarters, one could argue for a rate cut," said economist David Page at Investec Securities.
"But the Governing Council did not even discuss a cut. The Council is fixated with inflation expectations and is keen to hike rates at the first opportunity," he added.
Some politicians are starting to urge the ECB to consider an easier monetary stance to keep recovery on course and tame the euro's strength. The strong single currency is blamed for the stagnating manufacturing sector in November.
John Hatherly, head of global analysis at M&G Asset Management said that for non-US stock markets the dollar decline did represent a threat to export earnings but that was being outweighed by a lessening of other concerns.
"We've seen the oil price reverse, so that's no longer such a concern; you've seen a continuation of low interest rates and low inflation which is positive; you've seen very strong reports from companies in terms of profits, cash-flow and dividends... and of course valuations of equities do look very attractive."