European shares ended yesterday at levels last seen in May 2002 as oil prices firmly above $61 a barrel underpinned energy stocks such as BP, and US data showed robust consumer spending and steady inflation. Surprisingly strong results at German automotive supplier Continental and a 21 per cent surge in net profit at European low-cost airline Ryanair boosted the market.
A solid batch of earnings reports from several US companies also helped offset a mixed update from British aerospace-to-medical-devices firm Smiths and a broker downgrade on Deutsche Boerse stock.
The FTSEurofirst 300 index of pan-European blue chips ended up 0.8 per cent at 1,189.1 points, its highest closing level since May 27, 2002. The narrower DJ Euro Stoxx index gained 0.9 per cent to 3,349.9 points, its highest close since June 3 of the same year.
An economic report showing US consumer spending advanced 0.8 per cent in June, while the core Personal Consumption Expenditures, the Federal Reserve's favoured measure of inflation, showed prices steady. That helped sentiment and squashed worries of sharp monetary tightening.
"The up-turn looks for real, and its duration we believe will be longer than we had initially expected," said global equity strategist Andrew Garthwaite at Credit Suisse First Boston.
"The fundamentals behind growth have evolved to look better than we had first thought," Mr Garthwaite added, citing steady labour cost inflation, an expected rise in corporate spending, signs of recovery in Europe and no significant slowing in Chinese growth.
Investors now hope key US non-farm payrolls numbers for July, due on Friday, will add to that picture.
In the meantime, investors took comfort in pleasing results from Continental, which posted a second-quarter profit that easily beat consensus estimates, and repeated its target for record earnings this year. Its shares ended three per cent higher.
The weakening of the euro against the dollar, robust Chinese and US economic growth, and record low eurozone interest rates have helped many European companies produce forecast-topping earnings growth - helping the FTSEurofirst 300 rise for 11 weeks in a row and jump 13 per cent since the start of the year.
"Europe is having a very good earnings season so far, and when you have earnings upgrades coming through, the buying momentum tends to build," Akber Khan of Deutsche Bank said.
"What you have is a wall of money out there looking to find a home, and European shares look a lot more attractive in terms of valuations right now."
Ryanair's record quarterly results sent its stock 0.7 per cent higher, while Metro gained one per cent as investors looked past a second-quarter operating profit that missed forecasts to focus on news that the German retailer was sticking by its full-year forecast to increase sales by five to six per cent and earnings per share by eight to 12 per cent.
Shares of rival Carrefour rose 2.6 per cent in average volumes, but many traders dismissed recurring speculation that the French retail giant could be the target of a takeover by industry leader Wal-Mart.
Elsewhere, Swiss agrochemicals company Syngenta rose 4.3 per cent after UBS and Bank Leu both reiterated "buy" ratings and raised their price targets on the stock, while news KPN had won an outsourcing deal from banking giant ABN AMRO lifted the Dutch telecoms group by 2.4 per cent.