European shares held their gains yesterday afternoon, led by battered technology and insurance stocks amid perceptions that the prospect of a war against Iraq was receding.

French telecoms equipment maker Alcatel led the blue-chip leader board, rising six per cent after announcing it had won a 675 million euro contract with a Nigerian telecoms firm.

Overall volumes were light though, with little guidance from Wall Street which was closed for a public holiday.

"The market is saying that the chances of war have receded, which means chances of economic downturn are receding as well," said Lex Werkheim, a fund manager at Eureffect in Amsterdam.

Investors interpreted cautious comments by chief UN weapons inspector Hans Blix on Friday as a sign that a possible war against Iraq could be delayed.

Blix delivered a mixed assessment of Iraq's cooperation with UN weapons inspections teams that emboldened UN member countries who want inspections to be expanded and blunted a US-British drive for an early UN resolution authorising war.

"The balance is slightly positive after the events of this weekend, and we're seeing slight movements of money between assets classes - out of bonds and into equities - although it's not humungous," Werkheim added.

By 1436 GMT, the FTSE Eurotop 300 index was up 1.4 per cent at 794 as advancers beat decliners by six-to-one. The benchmark closed last Thursday at its lowest level since February 1997.

The narrower DJ Euro Stoxx 50 index gained 1.6 per cent to 2,236 points.

Wall Street was closed for the Presidents' Day holiday. The Dow Jones industrial average closed up 2.1 per cent on Friday, while the tech-laced Nasdaq Composite rose 2.6 per cent.

Tech shares were the main beneficiaries of the more positive mood. The high beta sector, which tends to exaggerate broader market movements, rose 3.4 per cent.

Swedish telecoms equipment maker Ericsson was among the sector's leading gainers, rising 7.4 per cent amid expectations of positive news from an industry fair in France.

The sector was also underpinned by a steep rise in the Philadelphia Stock Exchange Semiconductor index on Friday and by confirmation of good chip equipment sales at the end of 2002.

Industry group Semiconductor Equipment and Materials International (SEMI) said global sales of chipmaking equipment rose 43 per cent in December from the month before to $1.82 billion.

Dutch chip equipment maker ASML rose 5.6 per cent, as German chipmaker Infineon rose 7.4 per cent and Franco-Italian rival STMicroelectronics added 5.1 per cent.

In the insurance sector, another high beta sector, Dutch firm Aegon rose 4.3 per cent and Germany's Allianz rose 3.5 per cent.

Elsewhere, French drugmaker Sanofi-Synthelabo rose 3.9 per cent on investor hopes it will have some positive news about its pipeline when it reports 2002 results today.

German drugs and chemical firm Bayer added 4.9 per cent after it reiterated it aimed to increase 2003 profits despite the current tough business climate.

Airline stocks were also sharply higher after gains by their US peers, as crude oil prices fell, relieving worries of spiralling fuel costs and on the belief passenger numbers will not be depressed by war any time soon.

France's Air France rose 3.8 per cent, British Airways was up 1.6 per cent and Iberia added 3.1 per cent.