European shares rose to their best levels in nearly 12 weeks yesterday, powered by gains in mining groups as China's expanding economy remains hungry for raw materials and pushes up metal prices.
The FTSE Eurotop 300 index ended up 0.58 per cent at 1,001.21 points, its first close above the psychologically important 1,000 point mark since June 29.
Volume was good at three billion euros, boosted by the expiry of stock and index derivatives contracts across Europe.
The pan-European benchmark is up 1.3 per cent for the week and 4.6 per cent for the year, though still well inside is long-standing trading range.
The DJ Euro Stoxx 50 index closed up 0.8 per cent at 2,788.64 points.
Miners BHP Billiton, Anglo-American and Rio Tinto were among the top blue-chip gainers in Europe, pushing the basic producer sector up 1.8 per cent to within striking distance of its highs for the year.
Goldman Sachs JBWere said Australian iron ore producers were likely to win a 20 per cent price rise for sales to Japan as China's steady strong demand for steel defied expectations.
Elsewhere in shares, however, there were signs that rising metal prices were hurting big consumers such as carmakers.
Goldman Sachs said share markets overall will remain flat going into the next year and even beyond, but that commodities such as metals and energy may be a good bet for investors.
"Commodities is a very interesting asset class we are looking at," said Peter Oppenheimer, head of portfolio strategy at the investment bank.
Energy was the day's second strongest sector after metal stocks, as US crude oil prices rose two per cent to $44.75 a barrel on fears that new storms brewing in the Caribbean may upset US Gulf oil facilities after Hurricane Ivan caused disruption.
Among the day's standouts, shares in Big Food Group leapt 11.3 per cent to 102-3/4p after the owner of Britain's Iceland frozen food retail chain said it had held talks about a potential takeover worth about $679 million. It later confirmed speculation that the prospective bidder was acquisitive Icelandic retailer Baugur and "certain other investment partners".
Shares in rival grocer Somerfield rallied 1.9 per cent to 134p.
But carmakers lagged after a sector downgrade to "underweight" from Credit Suisse First Boston investment bank, citing slowing sales and other problems.
"Away from the revenue side, we remain concerned about the impact of steel prices, energy prices and transport costs," CSFB analysts said, and recommended selling Germany's DaimlerChrysler if the stock showed any strength. Daimler shares were down for much of the day but closed up 0.2 per cent at €35.4, while rival Volkswagen shed one per cent to €32.31.
CSFB's downbeat note overshadowed news that US Ford Motor Co. raised its third-quarter and 2004 profit forecasts due to strength in its financial services business and cost improvements at car operations.