European blue chips broke an eight-day losing streak yesterday as investors moved back into beaten-down banking, telecoms and energy stocks but weakness in the US dollar tempered gains for exporters.
A bounce on Wall Street underpinned gains for European shares after data showed US manufacturing activity was not as weak as some investors feared, helping sooth concerns that the fledgling economic recovery is faltering.
"Our view is that it can only get better from here. The macro economic news of the past two weeks has been below expectations but there are signs that things are improving there with the ISM today and if we can get some stability in the currency markets, equities should recover," said Gary Dugan, global equity strategist for JP Morgan Fleming Asset Management.
The Institute of Supply Management's index of US manufacturing showed a slight dip in manufacturing activity in September but not enough to deter buyers moving back into stocks for the start of a new quarter.
By 1540 GMT with just Frankfurt's DAX still officially trading, the FTSE Eurotop 300 index was 1.3 per cent firmer at 873 points.
Advancing stocks outnumbered decliners by a ratio of three-to-one while turnover was a moderate €3.1 billion.
The narrower DJ Euro Stoxx 50 index was 1.5 per cent higher at 2,432 points, having declined almost nine per cent from its 2003 high four weeks ago.
Dugan said the third quarter earnings season, which kicks off later this month, could surprise on the upside if upward revisions of economic growth flowed through to improved revenues.
"That would be seen as high quality earnings growth, as opposed to poorer quality earnings driven by cost cutting."
Equity markets should revisit the year highs in the fourth quarter, led by a rebound in financial and insurance stocks, he added.
In New York, the Dow Jones industrial average was up 1.1 per cent at 9,377, while the technology-heavy Nasdaq Composite Index gained 1.1 per cent to 1,807 points.
Around Europe, London closed 1.9 per cent higher while Paris added 1.8 per cent and Zurich gained 0.4 per cent. German stocks were 1.3 per cent higher in late trade.
France Telecom was a top blue chip gainer, adding 4.2 per cent as Credit Suisse First Boston reiterated its "outperform" rating on the stock as it moves to mop up minorities in mobile unit Orange.
British bank Barclays gained five per cent amid fresh talk that it could become a bid target, while UK rival Abbey National rose 4.8 per cent.
Traders said bank stocks were recovering after being hit hard by the past week's market selloff.