European stock indices ended yesterday at their highest level in five months as bullish sales forecasts from Siebel Systems buoyed software makers while slightly lower oil prices also helped mend sentiment.

Data showing steady new orders at US factories, excluding transport equipment, also helped soothe market worries that sky-high oil prices was hampering economic growth and squeezing corporate profitability.

Technology shares, autos, and transports and leisure issues - some of the worst European performers so far this year - led blue-chip gainers as a perception that the market may have taken an overly pessimistic view on the economy pushed investors back to stocks recently punished for their high exposure to economic growth and high raw material costs.

"Investors are too gloomy at present," said strategists at ING Financial Markets, adding: "Risk aversion is back to the same levels as early 2003. Without a re-run of a 1970s style crisis, this pessimism is not justified."

The FTSEurofirst 300 index of pan-European blue chips ended 0.94 per cent stronger at 1,014 points, having hit a high of 1,016 points earlier in the session - a level not seen since April 28. The narrower DJ Euro STOXX 50 added 0.98 per cent to 2,823.46.

After treading waters during the third quarter, equity markets have begun the final three months of 2004 with a bang, with the benchmark FTSEurofirst 300 up three per cent.

Investors are reassessing very bleak economic and earnings scenarios, strategists said, noting that if earnings and economic momentum was indeed expected to slow down, the degree of the slowdown may not be as sharp as many feared.