European blue chip shares raced towards seven-week highs in late trading yesterday, as traders looked ahead to possible interest rate cuts later this week.
Technology stocks led the way, in line with a surging Nasdaq. Lending support was the interest rate-sensitive bank sector, as investors warmed to results from ABN AMRO and welcomed news suggesting Deutsche Bank might have a ready buyer for its private equity investments.
By 1643 GMT, with only Frankfurt still trading officially, the FTSE Eurotop 300 index was up 3.47 per cent at 918 points, as gainers outnumbered fallers by around nine-to-one in solid volume.
A close here would see the benchmark post its best finish since September 12.
The narrower DJ Euro Stoxx 50 index gained 4.2 per cent to 2,592 points.
The Eurotop 300 has recovered by more than 15 per cent from its five-and-a-half year low set in early October.
Few experts were getting carried away with the market's gains, though.
Having forecast a seasonal end-year rally in oversold European stocks, strategist Jason James of HSBC said he saw another four to five per cent upside. But he said ongoing gains represented little more than a bear market rally.
"We're glad to be on the right side of it, but valuations remain unconvincing and economies could continue to disappoint next year," James said. "We're expecting some profit growth, but not enough to sustain valuations if we go much higher."
On Wall Street, the Dow Jones industrial average rose 2.16 per cent and the technology-laden Nasdaq Composite index climbed 3.66 per cent.
The US market was cheered by a federal judge's endorsement on Friday of the antitrust settlement that software giant Microsoft reached with the US government and nine states last year.
The Nasdaq's gains helped the DJ Stoxx European technology index surge by 7.6 per cent to its highest level since August.
Dutch chip equipment maker ASML and telecom gear makers Ericsson and Alcatel posted double-digit gains as investors hungrily snapped up battered tech shares, expecting further short-term gains.
Banks rose amid relief that earnings from ABN AMRO of the Netherlands beat expectations after the surprising losses clocked up by German peers in the past two weeks.
ABN AMRO shares rose 7.8 per cent after it said third-quarter net profit rose 24.2 per cent to 591 million euros, better than consensus, despite tough markets which have hit its rivals.
Deutsche Bank rose 10.1 per cent on news Dutch finance house HIB had expressed interest in its private equity investments.
Interest-rate sensitive financials like Swiss bankassurer CS Group and French bank BNP Paribas were also fired by rising expectations that the US Federal Reserve will cut interest rates at tomorrow's meeting.
Some investors hope the UK's Bank of England will follow suit at its meeting on Thursday, although the European Central Bank, which also meets on Thursday, is seen as less likely to ease borrowing costs in the euro zone.
Some strategists fretted over whether interest rate cuts would be taken as a sign of weakness, rather than as something that might drive liquidity to the market, boost banks' lending margins, and ease companies' funding pressures.
"If the Fed does ease, we would view it as an admission that the economy is not successfully making the transition from early-cycle (recovery) to mid-cycle (recovery)," said Richard Bernstein, Merrill Lynch's chief US strategist.
Elsewhere, shares in beaten-up Swedish-Swiss engineer ABB leapt 45 per cent on news it is in talks to settle asbestos claims and expects only moderate additional costs from any settlement.
The airline industry was also in the spotlight after Irish no-frills carrier Ryanair Holdings reported record first-half net profit that was up 71 per cent and raised its estimate for the full year by 15 per cent.
The results comfortably exceeded market expectations, sending the shares shooting up more than 13 per cent.
Shares in up-market rival British Airways rose by more than 11 per cent ahead of its own results on Tuesday.
Telekom Austria fell 1.95 per cent after three investment banks helped place half of rival Telecom Italia's stake in the group.