A soft start to trading on Wall Street took the shine off European stock markets yesterday, as gains were pared and indices retreated from their bank-fuelled five-month highs.
Heavily-weighted financials continued to lead the blue-chip climbers as investors warmed to an upbeat trading statement from Royal Bank of Scotland and to news it was expanding its profitable general insurance business by snapping up a competitor at a reasonable price, traders said.
The sector gains were reinforced by continuing takeover rumours, with Germany's Commerzbank up 4.2 per cent after cash-rich Bank of America was linked to a possible bid for Allianz's Dresdner Bank unit on Tuesday.
Vodafone was among the biggest fallers after investment bank Goldman Sachs cut its rating of the stock, along with recent-flying technology stocks such as Dutch duo ASML and Philips as investors cashed in on their recent gains.
By 1349 GMT, the FTSE Eurotop 300 index of pan-European blue-chips was up 0.5 per cent at 854 points, while the DJ Euro Stoxx 50 index was 0.9 per cent firmer at 2,431 points.
This left the Eurotop 300 benchmark about six points off its highest level since January 17 - hit earlier in the session.
In New York the Dow Jones industrial average was flat at 9,060 points, and the tech-laden Nasdaq Composite was 0.5 per cent weaker at 1,618 points.
Strategists pointed out that progressive interest rate cuts by central banks combined with a structural shift from consumption to savings have boosted the amount of funds available for investment to a five-year high.
"Liquidity in the broader sense is building up very strongly indeed, which has positive implications for equities and is less positive for bonds which have taken the bulk of inflows in the last few months," said strategist Malcolm Roberts, at investment consultants CrossBorder Capital.
But experts also continued to stress that investors needed to see compelling evidence of a recovery in company profits if shares were to make continued headway.
"At some stage you've got to see better earnings news - that's the big question for the second half of the year," said Michael Hartnett, chief European equities strategist at Merrill Lynch.
Royal Bank of Scotland jumped 5.2 per cent after the group said it expected first-half results to meet forecasts and after it revealed a 1.1 billion pound deal to buy UK general insurer Churchill from Credit Suisse Group's Winterthur.
Elsewhere, shares in Dutch food group Numico were up five percent after hitting a new high for the year, following the group's unveiling of a financing pact enabling it to pay senior debt and convertible bonds, and also turn around its troubled GNC health supplements business.
Shares in Swiss engineering group ABB surged 7.9 per cent on continuing hopes that a decision on its proposed $1.3 billion asbestos settlement deal could be made earlier than originally thought, dealers said.