European shares closed higher yesterday, earlier touching new three-and-a-half-year highs thanks to mining stocks and then halving gains after the European Central Bank president hinted interest rates would rise next month.
Miners Rio Tinto and Anglo American added 1.4 per cent as gold hit its highest price in 18 years and copper raced to a record high on rumours China could not get enough metal to cover a trading position.
UBS also increased its price targets across the mining sector.
The FTSEurofirst 300 index of pan-European blue chips unofficially closed 0.48 per cent higher at 1,236.85 points having earlier touched 1,244.45, its highest level since April 2002.
The index slashed gains after ECB President Jean-Claude Trichet said the bank was ready to "moderately augment" interest rates for the first time in five years.
"Trichet is steering expectations to action in December. We weren't sure which side of the fence he was on, but now it is pretty clear he is on the side of the hawks," said Commerzbank economist Peter Dixon.
"It probably shouldn't come as a huge surprise to the markets."
A volatile start on Wall Street, with the Dow Jones Industrial Average opening sharply higher before slipping into the red, failed to offer European shares fresh impetus. The FTSEurofirst 300 is still up 19 per cent this year, having bounced back from a weak October as third-quarter earnings reports have mostly been upbeat and oil prices have continued to fall.
The narrower DJ Euro STOXX 50 added 0.62 per cent to 3,425.2 points
Sentiment was also supported by the crude oil price, which slipped below $56 a barrel as investors grew confident that hefty fuel stockpiles would see the world's consumers through cold winter weather in the northern hemisphere.
Broker upgrades helped Zurich Financial add almost four per cent, extending the previous session's 5.6 per cent rise after the insurer beat forecasts. Richemont also benefited from broker comments after Thursday's results.
UK property firm British Land jumped 2.7 per cent to an all-time high on talk of sector consolidation, while Swiss drug stock Roche was strong after US regulators found no evidence that Tamiflu caused deaths of children in Japan.
German chipmaker Infineon was the standout firm to report results, but its shares were flat even though it narrowed its operating loss further than expected in its fourth quarter.
Swiss Re opened two per cent lower following a suspension but closed 1.2 per cent up after it announced an agreement to buy GE's Insurance Solutions business for $6.8 billion.