Strong results from drug group Novartis pushed European shares higher yesterday, but the advance was capped by weak insurers and caution ahead of key testimony from the Federal Reserve.
Fed Chairman Alan Greenspan was due to discuss US monetary policy with the Senate banking committee at 1830 GMT, after European bourses shut.
The FTSE Eurotop 300 index closed up 0.25 per cent at 968.69 points after dipping to fresh two-month lows earlier in the session.
Healthcare, technology, media, autos and financials all rose to offer relief from an almost uninterrupted one-month slide, but commodity producers, food and beverage firms, oils and telecoms joined insurers in the red.
The DJ Euro Stoxx 50 index ended up 0.4 per cent at 2,708.16 points.
Fund managers said stocks may struggle to make headway for some time as they trade in the lower half of a trading range set early in the year.
"We are into holiday season now and dealings do get thinner anyway, and then perhaps we need to get the US election out of the way," said Kevin Lilley, a fund manager at Royal London.
The market is still recovering after it was spooked last week by some disappointing earnings and comments from top technology firms such as Intel, Mr Lilley said.
"The rest of the company results generally are pretty good. So that, maybe, is what gets the market moving again," he said.
Royal London said markets looked cheap, with Europe trading at 13 times this year's expected earnings and at 11 times earnings for 2005, both below the traditional level of about 15 to 16.
Novartis was Europe's top blue-chip gainer after the Swiss drug firm increased its full-year earnings guidance, with booming sales of hypertension drug Diovan underpinning a 19 per cent rise in first-half net income.
Shares in Novartis climbed 4.6 per cent to 55.7 Swiss francs and the news sent a cheer through the European pharmaceutical sector.
GlaxoSmithKline was up 1.9 per cent at 1,062 pence, while AstraZeneca gained 2.7 per cent to 2,345 pence and Roche rose 3.2 per cent to 127 Swiss francs.
But the insurance sector told a sorrier tale. Top industry shares skidded following news from Swiss group Converium that it would suffer a deep second-quarter loss, which may force it to tap shareholders for cash to replenish funds drained by rising US claims.
"For me the question is whether it is specific to Converium or an industry-wide issue," said Roger Degen, an analyst with Lombard Odier Darier Hentsch.
Converium shares lost nearly half their value and the company's warning hit other reinsurers with substantial business in the United States.
Swiss Re was down 2.4 per cent at 72 Swiss francs, while Munich Re shed one per cent to €79.40 and French firm Scor fell 4.7 per cent to €1.2.
Shares in Swatch rallied 3.5 per cent to 167.75 Swiss francs on news that Swiss watch industry exports surged 26 per cent in June, as US and Asian demand took off.
But Italian carmaker Fiat dropped more than three per cent when the group did not deny that its new chief executive would lower its recovery targets as a turnaround proceeds.
On a brighter note, British project management and engineering firm Amec jumped 8.5 per cent to 293 pence after a report of a potential takeover interest.
And Premier Foods rose two per cent above their issue price in a steady stock market debut in London.
As European bourses shut, in New York the Dow Jones industrial average was flat at 10,094 points, while the Nasdaq Composite gained 0.57 per cent to 1,894 points.