European share indexes closed above session lows yesterday as sky-high oil prices supported heavily-weighted oil stocks but worried investors that surging raw material costs would erode profits in other sectors.

ChevronTexaco's announced $16.4-billion acquisition of Unocal and a trading update from BP further boosted the energy sector, and helped stem market losses led by technology stocks and insurers.

The FTSEurofirst 300 index of pan European blue chips shed 0.45 per cent to 1,084.6 points. The narrower DJ Euro STOXX 50 fell 0.6 per cent to 3,042.2 points.

Oil prices above $58 a barrel added to worries that higher energy costs might curb consumer spending and pinch corporate profits at companies like British Airways, down 1.5 per cent, and car maker Peugeot, down 1.7 per cent.

Oil prices have gained more than $3 since Thursday when top energy derivatives trader Goldman Sachs released a report saying oil markets might have entered a "super-spike" period that could eventually drive them towards $105 a barrel.

Rocketing oil prices also fanned inflation worries, with many investors worried that inflationary pressures may trigger a sharp monetary tightening by the US Federal Reserve - even though some economists said such worries were overdone.

"We would not exaggerate the ultimate inflation impact (of oil) since the flow-through of commodities to an index, for instance core CPI, that is over 70 per cent services is very loose," said Merrill Lynch economist David Rosenberg.

Around Europe London's FTSE 100 share index was 0.4 per cent weaker, while Paris's CAC 40 and Frankfurt's DAX shed 0.7 per cent each and the Swiss Market Index fell 0.8 per cent in Zurich.

Chip maker Infineon led the technology sector down on news of lower sales to Siemens' mobile phone unit, while Italian insurer RAS shed five per cent after its chief executive unexpectedly resigned.

German insurance group Allianz, which controls RAS, fell 1.4 per cent.

British supermarket chains were another bleak spot as William Morrison sank on fears of an escalating price war between market leaders Tesco and Asda.

Also on the downside, shares in European aerospace giant EADS fell 1.9 per cent on prospects of the maiden flight of the superjumbo Airbus A380 airliner being delayed. EADS owns 80 per cent of Airbus.

Gas provider Centrica was one of the few gainers outside the oil sector, up two per cent as ABN AMRO upgraded the stock to "buy" from "add" and British newspaper The Sunday Times said it might be ripe for an approach from private equity firms.