European shares rose yesterday, erasing some of the previous session's losses, led by mobile phone maker Nokia and with the broader market helped by a surprise improvement in US consumer confidence.

The US data sparked hopes that the worst might be over for the world's largest economy and outweighed a steeper-than-expected drop in German business confidence, which had sent the market lower during morning trade.

But traders and analysts said investors appeared risk-averse and saw no signs yet of a sustained stock market recovery.

"The markets will trade in a nervous zig-zag for the next few weeks," said Heinz-Gerd Sonnenschein, equity strategist at Postbank in Germany, citing uncertain prospects for economic growth and hence for commodities and currencies, as well as persistent financial industry worries.

The FTSEurofirst 300 index of top European shares rose 0.2 per cent to 1,171.09 points. It lost 0.6 per cent on Monday, when the UK stock market was closed for a holiday.

The index fell as much as 1.4 per cent early yesterday after the closely watched Ifo business climate indicator for Germany, Europe's largest economy and the world's top exporter, came in below the market's consensus.

Across Europe, Britain's commodity-heavy FTSE 100 was down 0.6 per cent while Germany's DAX climbed 0.7 per cent and the French CAC 40 rose 0.3 per cent.

Nokia was the day's top blue-chip performer with a rise of 2.9 per cent after the global market leader unveiled two new high-end models, reassuring investors it was on track to refresh its offering for the key Christmas sales period.

"The portfolio renewal has started and this should boost profitability," said Pohjola analyst Hannu Rauhala. Newer and more expensive cellphone models usually have higher profit margins than older and cheaper ones.

Thanks largely to Nokia's advance, technology was the day's strongest sector in Europe with a gain of two per cent. Telecommunications equipment makers Alcatel-Lucent and Ericsson rose 4.7 per cent and 2.6 per cent, respectively.

Basic resources, which includes mining, was the weakest sector with a loss of 0.9 per cent as lingering worries about global economic growth outweighed miner Rio Tinto reporting a better-than-expected 55 per cent rise in first-half profit.

Shares in Rio Tinto fell 0.6 per cent, marginally outperforming the sector after the company raised its interim dividend by 31 per cent and reaffirmed it would boost its full-year payout in 2008 and 2009 by at least 20 per cent in each year.

Europe's top-300 index is on track for its ninth month of losses in the last 10. It has fallen 22 per cent this year, with banks down 33 per cent after massive write-downs on investments in risky US mortgage securities.

UK banks featured among yesterday's prominent losers, with Lloyds TSB down 2.5 per cent, Royal Bank of Scotland down 1.4 per cent and HBOS down 1.3 per cent.