European shares were set to close at three-month highs and near breakeven for the year yesterday amid relief over a heavy batch of company results that showed the economy had not fallen off a cliff.

"I think there is still scope to continue higher. Momentum is with it," said Gareth Evans, European equities strategist at ING Barings.

Insurers were strongest, with Britain's Aviva and Prudential among the leaders after Lehman Brothers named them its top picks in the UK life insurance sector.

Upbeat earnings and guidance from US reinsurer Everest Re Group helped lift European rivals Swiss Re and Munich Re.

The stock market's recovery over the past month has also helped the boost the value of the battered sector's equity holdings, thereby easing pressure for insurers to shore up solvency levels.

Dutch chip equipment maker ASML leapt six per cent to €7.46 after unveiling a smaller-than-expected loss, while trendy sport shoes maker Puma of Germany rallied 13 per cent to €90.99 after the group more than doubled its first-quarter profits and raised its earnings goal for 2003.

By 1533 GMT, with only Frankfurt still trading, the FTSE Eurotop 300 index was up one per cent at 831 points and was poised to clock its best close since January 20.

The gains were broad-based, with advancing issues outpacing decliners by nearly three to one in moderate volume.

However, German industrial group Siemens shed 1.5 per cent to €43.76 amid nervousness ahead of its results today.

Shares in French electrical equipment maker Schneider sank 4.3 per cent to €41.96 after it said a strong euro could bite into its profit margins this year.

The Eurotop 300 index, which has risen nearly 22 per cent since its March 12 six-year closing low, is only three per cent from breakeven for 2003.

"We have an end of year target of 910 points on the Eurotop 300, but one has to be cautious about the earnings outlook as expectations are running pretty high, and there will come a point when they will have to be brought down," Evans said.

Asset managers were also cautious about future earnings.

"I doubt that the current rally is sustainable," said fund manager Stuart Fraser from Standard Life Investments in Edinburgh. "Not surprisingly, earnings in the United States have come in better than in Europe, as American companies are benefiting from the weakness of their own currency."

"But we would need global growth above trend to see the markets break above their current trading range, and I don't think we are going to see the levels of growth we've seen in 2000 for at least another two years," Fraser said.

A slide in crude oil prices, triggered by a rise in US crude oil inventories, also helped sentiment by aiding economic recovery. Oil producer cartel OPEC is expected to curb output today to steady prices.

The DJ Euro Stoxx 50 index rose 0.8 per cent to 2,362 points, helping to put a rosier sheen on the market chart.

"Closing above the key resistance level of 2,348 is crucial for the continuation of the upward cycle (for the Euro Stoxx 50 index)," said chartist Jean-Christophe Dourret from Paris-based broker E.T.C.

Frankfurt and Paris both fleetingly broke above the symbolic 3,000-point level for the first time since mid-January.

On Wall Street, the Dow Jones industrial average was flat at 8,480 points, while the tech-studded Nasdaq Composite gained 0.4 per cent to 1,457 points.

The food and beverage sector fell after the world's largest food group, Nestle, posted a worse-than-expected 7.5 per cent drop in first-quarter sales, sending its shares down 0.7 per cent to 275.50 Swiss francs.

The company failed to meet its own long-term core growth target for a fifth consecutive quarter and tacitly admitted the four per cent goal was a rod for its own back by saying it would focus on a new measure of organic growth in future.

Nestle blamed lower demand for ice cream and chocolate, which dealers said was partly responsible for sending shares in UK chocolate rival Cadbury down 3.66 per cent to 336 pence. Unilever, which owns the Ben & Jerry's ice cream brand, fell 1.4 per cent to €56.65.

On a brighter note, shares in Anglo-Dutch steelmaker Corus jumped 31 per cent to 12.50 pence after it named Pechiney's former aluminium head, Philippe Varin, as its new chief executive, sparking hopes of a revival in its fortunes.