European shares took off yesterday as reassuring results from Benelux financial group Fortis lit a fire under insurers despite warnings the broad-based rally was only a bounce after prolonged selling.
The European equity market tail appeared to wag the US dog for a rare change, sending Wall Street surging, too, but investors kept a close eye on intensive last-minute diplomacy to avert a war in Iraq.
By 1635 GMT when only Frankfurt was still officially trading, the FTSE Eurotop 300 index was up 5.7 per cent at 722 points - its biggest one-day percentage gain since mid-October.
It fell 3.4 per cent on Wednesday to close at its weakest level since mid-December 1996.
"For the time being I would characterise this as a savage, bear market rally," said Richard Champion, a European fund manager at Pavilion Asset Management.
"We are cynical about chasing rallies like this." The stock market recovery was backed by heavy volume, however, with advancing shares outpacing decliners by a hefty 20-to-1 margin.
The Eurotop 300 has fallen in each of the past three years and is still down nearly 16 per cent for 2003.
Investors put aside yet more gloomy US data and worries about war as the United Nations Security Council remained deeply divided over a new resolution on Iraq and the chances of averting war seemed to have dwindled to their lowest point yet.
The US State Department denied reports that some Iraqi officials were in surrender talks. The rumour had helped to trigger a surge in the dollar and profit-taking in safe-haven assets such as bonds and gold.
The DJ Euro Stoxx 50 index rose 6.3 per cent to 1,967 points. "We still have a fairly cautious view on the market at this point," said Saul Henry, a European strategist at UBS Warburg.
"We still think there are significant earnings downgrades to come through, and any rally we get over the next few days won't be sustained," Henry said.
On Wall Street, the Dow Jones industrial average rose 1.36 per cent to 7,656 points, while the tech-laden Nasdaq Composite gained 1.65 per cent to 1,300 points.
Fortis rose 23.7 per cent to 11.46 euros, though only back to a level seen last Friday, after reporting 2002 profits that beat expectations and maintaining its dividend. The news helped to put the battered insurance sector on a steadier footing, helping rivals such as Dutch firm Aegon.
Fortis helped the European insurance sector recover from the decade-low it hit earlier in the week.
Aegon rose 17 per cent to 7.16 euros, while Dutch financial group ING gained 15 per cent to 10 euros. Axa in France rose 13.6 per cent to 10.30 euros, while Britain's Prudential gained 10.6 per cent to 309.6 pence.
Elsewhere in the market, Dutch construction firm Volker Wessels Stevin jumped 56 per cent to 19.20 euros after a family shareholder surprised investors by offering to buy the rest of the firm for around 690 million euros, a big premium.
Belgian supermarket group Delhaize rocketed 26.7 per cent to 15.65 euros after posting better-than-expected earnings and forecast flat profits for 2003 - one of the few companies able to make any predictions going forward.
The media sector, which crashed to a 10-year low earlier in the week, was lifted by recoveries in Dutch publisher Reed Elsevier, British broadcaster Granada and British information provider Reuters.
Deutsche Telekom was up eight per cent at 9.87 euros as the stock rebounded from heavy selling earlier in the week, helped by news of better-than-expected results at its Internet unit T-Online.
There were some casualties, however. Shares in Anglo-Dutch metals group Corus sank by 33 per cent to just six cents in Amsterdam after the group, under pressure to cut debt, announced it would abandon the 750 million-euro sale of aluminium production assets.
Shares in French heavy engineering firm Alstom were down 6.6 per cent at 1.26 euros amid a batch of broker downgrades after the firm's drastic new rescue plan ratcheted up fears of a cash crisis.
Investors looked past the latest batch of gloomy U.S.ed that retail sales fell by a much bigger than expected 1.6 per cent in February.
"It seems the US economy hit the mythical wall in February and the markets are struggling to see where growth is coming from. As soon as sales disappoint then the corporate sector will axe headcount," said Matthew Wickens, global economist at ABN AMRO in London.
An upward revision to January retail sales helped to take the sting out of February's fall, analysts said, adding that poor weather was partly blamed for February's slide, the biggest since November 2001.
Strategists said the stock market may now have largely completed its positioning ahead of likely war in Iraq.
"This may be the beginning of a market finding the bottom before we go onto a war footing. Maybe the market will rally if we get a benign result, but we would use that to shift into defensive sectors," UBS Warburg's Henry said.
Fund mangers were, however, taking no chances. "It's so much a consensus now to have a post-war bounce that I fear it won't happen, but I am slightly positioned for one," said Champion of Pavilion Asset Management.