European blue chips were hoisted higher yesterday by insurers such as Munich Re and telecoms firms like France Telecom, but strategists were loath to say the market's recent gains were sustainable.
Energy stocks were also on the boil, with higher oil prices firing up companies like BP and TotalFinaElf, while German chemicals and drugs group Bayer firmed on speculation of it selling its pharmaceuticals unit.
British drinks giant Diageo was among Europe's biggest decliners, however, after it said it would not be able to complete the sale of its Burger King unit after a private equity consortium demanded a sharp cut in the price. The stock lost 4.6 per cent.
By 1630 GMT, with only Frankfurt still trading, the FTSE Eurotop index was up 0.8 per cent, its third consecutive day of gains, while the DJ Euro Stoxx 50 index of the euro zone's 50 biggest companies rose 1.2 per cent.
Despite the gains, strategists said there remained too many uncertainties in the market for a sustainable rally.
"We may be coming out of negative territory into neutral territory, which is a far better environment than the past two-and- a-half years, but by no means are we in a bull market yet," said Eureffect Asset Management fund manager Lex Werkheim.
"There are still a lot of questions about insecurities in the market on the geopolitical front, and on the p/e (price/ earnings valuation) front and the economic growth front," he said.
Werkheim's comments chimed with Deutsche Bank European equity strategist Bernd Meyer.
"Fundamentally, there's room for more upside, but there are still a lot of negatives weighing on the market, not least economic uncertainty and uncertainty about a possible war with Iraq," Meyer said.
"Until we get through that uncertainty, I don't see a sustainable long-term recovery."
A mixed performance on Wall Street also took the gloss off the market's rise.
The Dow Jones industrial average was down 0.5 per cent as most European bourses shut, weighed down by a grim brokerage call on phone giant AT&T Corp and a lacklustre sales forecast from the world's biggest retailer Wal-Mart Stores Inc
The Nasdaq Composite was unchanged.
Munich Re, the world's biggest reinsurer, led the European insurance sector higher, rising 4.0 per cent after Deutsche Bank upgraded its rating to "hold" from "sell" after the stock's recent underperformance of the sector.
Troubled French insurer Scor leapt 11.6 per cent after its new chief executive vowed to return the firm to profit next year and set out plans to press ahead with a capital increase of up to 400 million euros.
Swiss Life also jumped 7.8 per cent after it detailed a deeply discounted equity and debt issue.
Among telecoms stocks, France Telecom swelled 3.0 per cent after investment bank Merrill Lynch said it had raised its long-term rating on the telecoms sector to "overweight" and despite its cautious stance on the French operator.
Merrill Lynch said it favoured Europe's largest mobile operator Vodafone and Britain's BT, among others, which rose 2.8 and 2.4 per cent respectively.
The DJ Stoxx Telecoms index, which added 2.2 per cent, is at its highest level in five-and-a-half months, proving that the battered sector is recovering amid evidence of potential new revenue earners, healthier balance sheets and improved cashflow.
Energy stocks drew support from higher oil prices, with Europe's biggest blue-chip BP up 0.5 per cent and TotalFinaElf 1.3 per cent higher and Italian oil major ENI 1.9 per cent firmer.
Brent crude added about 0.5 per cent to $22.87 a barrel as the threat of a new wave of terror attacks added to fears of a war in Iraq, which has the world's second biggest crude oil reserves.
Britain and Kuwait said on Sunday they had foiled terror attacks by Arab assailants as more warnings were issued that Osama bin Laden's al Qaeda guerrilla network was back in business.
Elsewhere, German drugs and chemicals group Bayer was a notable riser after industry sources signalled it is in preliminary talks to sell its loss-making drugs unit. The stock rose three per cent.