European equity markets closed within a whisker of 2003 highs yesterday, lifted by gains in weighty oil shares and expectations the Federal Reserve would signal no change to its monetary policy for some time to come.
Oil majors Royal Dutch/Shell Group, BP, Total and Statoil each gained more than two per cent as colder temperatures spurred worries about supplies to feed heating demand, underpinning oil prices.
Gains from the energy sector alone represented nearly a third of overall European market gains.
Other standout movers included Deutsche Telekom, up nearly three per cent in a rallying German stock market after a fresh economic survey showing optimism among German investors and analysts was at its highest in three and a half years, added to hopes of economic recovery in Europe's leading economy.
The FTSE Eurotop 300 index of pan European blue chips ended up 0.7 per cent at 940 points and the narrower DJ Euro Stoxx 50 index was 0.8 per cent higher at 2,673.
Investors braced for a Fed statement at 1915 GMT, widely expecting the powerful central bank to keep interest rates unchanged at 45-year lows but anxious to see if it will also hold onto its accommodative stance following a spate of strong economic data.
"We doubt the Fed will take the first step at today's meeting toward signalling an intention to change monetary policy," said Annamaria Grimaldi from Morgan Stanley.
"Tightening lies well into the future and the Fed doesn't want to signal that their views have markedly changed."
Strategists said last Friday's weaker-than-expected US employment report showed continued improvement in the labour market, but not at a pace likely to trigger upward pressure on inflation any time soon.
Investors were torn between growing evidence that an economic recovery is ongoing and worries that this rebound may not be as strong as initially envisaged.
The relentless weakening of the dollar - which yesterday hit another record low against the euro on expectations that the Fed would do little to boost its appeal - also kept European exporters under pressure.
And with just two full trading weeks left until the end of the year, investors were inclined to align their portfolios more closely with benchmark indexes to sit out the rest of the year, eyeing their first positive equity returns in three years.
The benchmark Eurotop 300 currently stands 9.7 per cent above breakeven for the year.
"The concern at the moment is valuations which are looking very rich," said Nigel Cobby, managing director of European equities at JP Morgan.
"Unless we get some very strong data out of the United States, I don't think we are going to see much change in European equity markets until 2004, when analysts will start raising their estimates for 2005".