European shares bounced from fresh 2004 lows set earlier yesterday, helped by heavily weighted oil stocks rising on high prices and takeover talk, while Allianz rose 2.1 per cent on strong results.
A rally in US stocks also helped firm market sentiment. However, traders said thin volumes exaggerated the broader market's rise and they did not expect stocks to enjoy big gains unless crude oil prices dropped from current record levels.
By 1555 GMT, the FTSE Eurotop 300 index of pan-European blue chips was up 0.96 per cent at 950.01 points, rebounding from a new 2004 low of 934.72 struck in the session.
"We don't think this is the start of a rally. People will be fairly cautious unless we see a big retreat in oil prices," said a sales trader at a London brokerage.
Trading was affected by the summer holiday season, with volumes at a paltry €1.5 billion, much lower than the daily average.
"From a valuation perspective, we think a pro-cyclical stance is warranted," said Bernd Meyer, European strategist at Deutsche Bank in Frankfurt.
"We are overweight on sectors particularly more exposed to global growth," said Mr Meyer, who fancies stocks in the basic resources, industrials and capital goods sector.
The narrower DJ Euro Stoxx 50 index rose 0.93 per cent to 2,603.97 points.
Oil major BP rose 1.3 per cent to 493-1/2 pence. Around Europe, London's FTSE 100 rallied 1.1 per cent while Frankfurt's DAX rose 1.4 per cent. Paris's CAC-40 gained 0.9 per cent and Zurich's SMI was up 0.8 per cent.