European shares firmed yesterday afternoon as investors bet that war against Iraq would happen soon, as US Secretary of State Colin Powell showed what he described as evidence of Baghdad's deception on banned weapons.

At 1608 GMT, the FTSE Eurotop 300 index was up 1.3 per cent at 794 points after reversing the morning's losses. The DJ Euro Stoxx 50 index of euro zone blue chips gained 1.24 per cent to 2,211 points.

Powell was continuing to offer his case against Iraq to the UN Security Council.

"The speech we are listening to sounds reasonably convincing and it's fairly obvious that Iraq has not fulfilled its obligations, although there is still a question whether the UN will buy that," said Jason James, European strategist at HSBC bank.

"But the market is drawing a conclusion that war is not too far away, which is better than constant worrying about when it's going to be, or if it's going to be. The market would prefer the certainty that the war is going ahead," James said.

Some investors still hold out hope that battered stock markets will rally sharply once an actual war with Baghdad began, just as markets did when an attack against Iraq began in 1991.

On Wall Street, the Dow Jones industrial average was up 0.6 per cent at 8,067 points, while the tech-studded Nasdaq Composite gained one percent to 1,320 points.

Among the day's standouts, Deutsche Telekom rose six per cent to 11.80 euros, bouncing back from a 22 per cent slide in the last three weeks.

French insurer Axa reported broadly flat annual sales, as weak money management results offset growth in the US and Japan. The stock gained 4.6 per cent to 11.61 euros.

The lack of nasty surprises in Axa's update helped to put battered insurers on a steadier footing after US peer AIG's warning on Tuesday.

The healthcare sector was pressured by a six percent fall in Aventis shares to 42.92 euros after the Franco-German drugmaker cut its guidance for 2003 to reflect the increased competitive threat to its top allergy drug Allegra in the US.