European stock markets raced to one-week highs in late trade yesterday, as investors overcame their security concerns and snapped up blue chips like tech giant Philips and car maker DaimlerChrysler.

Volumes were not as bad as some had feared on the eve of the first anniversary of the September 11 attacks on the World Trade Center, despite long-standing worries about possible new violence and of war with Iraq.

"The mood is slightly positive because there is talk that large US institutions are going to ensure that the market will not end down tomorrow," said Lex Werkheim, a fund manager at Eureffect Asset Management.

Also offering support were buoyant oil stocks such as BP and Shell/Royal Dutch, which added more than three per cent each as the price of Brent crude oil hit $29 a barrel after the US Navy warned of a possible Al-Qaeda threat against Middle East tankers.

However, some strategists continued to preach caution, wary of the still-gloomy outlook for economic growth and corporate profits that has benchmarks esconced about 14 per cent above the five-year intraday lows seen on July 24.

"The feedback we've been getting is that clients are reducing risk, returning to benchmarks, and not taking active sector bets until we get through this," said Saul Henry, pan-European equities strategist at UBS Warburg.

"And we're not anticipating a significant pickup in risk appetite even after tomorrow," he added.

By 1549 GMT, the FTSE Eurotop 300 index of pan-European blue chips was up 2.6 per cent at 940 points and the narrower DJ Euro Stoxx 50 index jumped 2.8 per cent to 2,636 points.

Advancers outnumbered decliners by about five-to-one. In New York, the Dow Jones industrial average rose 0.4 per cent and the tech-laced Nasdaq Composite added 0.5 per cent.

DaimlerChrysler was one of the leading gainers, adding 4.6 per cent after the German car maker reiterated that 2002 operating profits at its truck unit would exceed last year's e 51 million.

Rival luxury car maker BMW accelerated 1.5 per cent after posting upbeat monthly sales for its BMW and Mini brands, helping the DJ Stoxx European auto index up 3.5 per cent.

And helping car makers generally was rival Ford Motor, after the US group said late on Monday that it will make a small profit in the third quarter and not the loss it forecast earlier, having posted a $5.45 billion loss last year.

Airline stocks enjoyed a relief rally, with Air France up 4.9 per cent and British Airways up 2.5 per cent, as investors cast off fears of possible new hijackings.

But there was some divergence in the tech sector after Nokia , the world's largest maker of mobile phones, kept its profit outlook intact based on aggressive cost-cutting and the launch of new colour-screen handsets, but cut its third quarter sales target amid weak demand for mobile network equipment.

The update was seen as negative for companies who rely more heavily on network equipment sales than Nokia, which is more focused on handsets.

Nokia's shares were down 1.1 per cent while Sweden's Ericsson, the world's biggest supplier of mobile phone network equipment, ditched 6.3 per cent.

Dutch electronics giant Philips, which counts Nokia among its clients, fared best, rallying by 7.1 per cent as traders breathed a sigh of relief that the Nokia mid-quarter trading update had not been worse.

Also helping were news that Philips had teamed up with IBM to jointly develop systems for secure delivery of entertainment content to consumers, and optimism ahead of its chip making unit's analyst briefing tomorrow.

Elsewhere in the market, insurers underperformed after Britain's third-largest life assurer Legal & General and French reinsurer Scor unveiled rights issue plans, stoking worry that others in the sector will have to follow suit as sliding equity markets hit their holdings in shares.

Legal & General shares added 1.6 per cent but reinsurer Scor slumped 11.9 per cent, while Zurich Financial, which is also preparing a rights issue, lost four per cent.

Italy's second biggest insurance company RAS jumped 8.4 per cent after announcing it planned to buy back up to e 800 million of its own shares.

Shares in UK electrical good retailer Dixons rose 8.4 per cent after the British Retail Consortium said retail sales grew in August at their best yearly rate for five months.

Traders also said investors were buying ahead of an annual general meeting at Dixons today, when they expect the company to confirm an optimistic trading outlook.