European shares spiked in late trade yesterday as better-than-expected data on the US manufacturing sector offset disappointment after the European Central Bank decided not to cut interest rates.
Swedish telecoms network giant Ericsson boosted tech stocks with bullish comments about its first-quarter margins, while insurers such as France's Axa also benefited as investors began the quarter in a more positive frame of mind.
The ECB left benchmark rates unchanged at 2.0 per cent, as expected, but dampened expectations of a future cut in rates, sticking to its view that a modest recovery is on track.
ECB President Jean-Claude Trichet said the bank had concluded "the present level of interest rates is the kind of level which ensures price stability".
Ken Wattret, chief euro zone market economist at BNP Paribas in London, said there was some disappointment the central bank had not been more dovish but that the tone of the comments should not have come as a surprise.
"The market was beginning to think that the ECB could cut imminently or give us a very clear signal that a move was imminent. That is not the ECB style. They dislike to paint themselves into a corner."
Analysts said a cut in borrowing costs would have been positive for stocks by encouraging growth and taking some heat out of the strong euro, but there was a silver lining.
"I don't expect this to lastingly affect stock markets. People will look at the flip side of the coin and see it means the economy is not that rotten after all," said a senior trader in Paris.
The FTSE Eurotop 300 index of pan-European blue chips closed 1.2 per cent higher at 993.5 points - its highest close since the March 11 bombings in Madrid.
Turnover was a moderate €2.9 billion, while rising stocks outnumbered declining shares by a ratio of four to one.
The narrower DJ Euro Stoxx 50 index also rose 1.2 per cent to 2,819.7 points.
Earlier yesterday, an upbeat reading on European manufacturing and data showing improving French confidence bolstered the euro zone recovery story and helped dampen rate cut speculation.
In the US, the Institute of Supply Management's March manufacturing index came in better than forecast, showing an unexpected increase in activity and hiring.
That cheered investors ahead of today's key non-farm payrolls data and inspired gains on Wall Street.
The blue-chip Dow Jones industrial average up 0.4 per cent at 10,400.2 points, while the Nasdaq Composite Index rose one per cent to 2,014.8 points by 1615 GMT.
The figures helped the upbeat mood across the Atlantic.
Around Europe, Paris's CAC-40 ended up 1.2 per cent, and Zurich's SMI and Frankfurt's DAX both closed 1.8 per cent higher. London's FTSE 100 underperformed as it closed 0.6 per cent firmer.
Ericsson closed up 6.7 per cent after saying that margins in the first quarter would be higher than in the fourth, lifting peers such as France's Alcatel, which gained 4.8 per cent.