A retreat in crude oil prices helped European shares rebound to near three-week highs yesterday, with Europe's largest consumer electronics maker, Philips also helping after positive broker comments.

ARM Holdings was a sore spot though after the British semiconductor designer agreed to pay $913 million to buy US chip components firm Artisan. Its shares slumped 18.7 per cent amid concerns it had overpaid.

The FTSE Eurotop 300 index of pan-European blue chips gained 1.4 per cent to end at 964.7 points. The narrower DJ Euro STOXX 50 added 1.4 per cent at 2,662.4 points.

Market watchers said further gains may be in the offing after the benchmark Eurotop 300 index rebounded more than three per cent from last Monday's year low of 934.72 points.

But they pointed at thin volumes of two billion euros yesterday as a sign that the rebound was fragile.

"Last week's rally appears to mark a near-term low point for the market and the start of a late summer/fall recovery phase," said Merrill Lynch analyst Richard McCabe.

"Breadth was strong on the rally, but volume failed to expand," he said, adding: "Volume should eventually improve to support a sustained advance, but we are not inclined to question the durability of a rally merely because of light volume in early stages."

Concern that spiraling oil costs would crimp corporate profits and put pressure on a global recovery have dodged global markets in recent weeks.

But yesterday, US oil prices fell below $47 a barrel, down from last week's record highs near the $50 mark. This helped fuel-hungry airlines Air France-KLM, British Airways and Lufthansa nose up two to three per cent.

British Airways was also helped by news the carrier had settled a dispute with unions to avert a looming 24-hour strike.

Investors awaited on Friday to hear Federal Reserve Chairman Alan Greenspan's latest view on the state of the US economy after recent signs that soaring oil prices had started to affect economic activity.

Back on the European corporate news front, Philips rose 3.5 per cent after UBS raised its rating on the stock to "buy" and Merrill Lynch added it to its list of top picks in Europe.

Consumer-related cyclical shares and technology stocks led the broader market's recovery, as a dip in crude oil prices eased concerns about the effect of high prices on consumer confidence and corporate profits.

Car giant DaimlerChrysler and Renault were other gainers, up over 1.5 per cent each, while Volkswagen shares were further boosted after the giant asked German workers to forego pay hikes for two years as part of a broader plan to lop some two billion euros from labour costs by 2011.