Cars drive European stocks toward 2 1/2 year high

European shares kicked off 2005 by climbing to their highest levels in almost two and a half years yesterday, with carmakers leading the way after December auto sales figures showed a pick-up in demand.

France, Sweden and Spain all saw strong growth in new car sales in December, car associations and a statistics agency said yesterday.

France's Peugeot raced 2.7 per cent higher to €47.98, and French car parts maker Valeo ratcheted up 3.67 per cent to €31.93.

The pan-European FTSE Eurofirst 300 index of blue-chip stocks closed up 0.57 per cent at 1,047.73 points. Earlier yesterday, the index touched 1,050.34, its highest level since July 10, 2002.

A $2 fall in US oil prices helped bolster sentiment among fuel-reliant companies. Oil prices were down on expectations that mild US weather at the start of the New Year would limit demand for heating oil.

Oil producers were the only sector of the market to post losses as investors judged the price they will be able to fetch for their reserves has waned. Royal Dutch dipped 0.21 per cent to €42.26.

A small rebound by the dollar lifted exporters such as car giant DaimlerChrysler.

There was also some positive news specific to the region; euro zone manufacturing growth picked up in December for the first time in five months.

The Eurofirst 300 ended 2004 in positive territory for a second consecutive year. Investors are hoping for more equity market gains in 2005, but strategists have warned that a cooling of the global economy and further falls by the dollar against the euro could cap returns.

Santander Central Hispano rose 0.77 per cent to €9.2 after Chairman Emilio Botin said in a newspaper interview published on Sunday that he expected profits this year at Spain's biggest bank to top very good 2004 results.