European shares pared gains late yesterday as Wall Street turned mixed after weak economic data, offsetting a rise in insurers and in cosmetic groups L'Oreal and Beiersdorf.
By 1541 GMT, with only Frankfurt officially open, the FTSE Eurotop 300 index of pan-European blue chips was up 1.1 per cent at 787 points, its third successive rise, while the DJ Euro Stoxx 50 index rose 1.2 per cent to 2,186.
News US troops had advanced to the outskirts of Baghdad had earlier boosted the Eurotop by more than two per cent as investors looked for a quick end to the war in Iraq and an improved economic and corporate outlook.
But a rise in weekly US jobless claims to their highest level in nearly a year and a worse-than-expected key US service sector indicator tempered the rally, reminding investors of the world economy's underlying frailties.
"It's not so much about a fog of war but about a fog of economic uncertainty," said Stuart Fraser, European fund manager at Standard Life Investments.
However, volumes were better than average for the first time in weeks, and rising stocks outpaced fallers by about three to one.
The market's view of the war - its likely duration and its impact on a doddering global economy - has shifted radically in just over three weeks from optimism to deepening pessimism.
The Eurotop 300 has risen six per cent in the last three days, having fallen nine per cent in the previous six sessions. During the seven sessions before that it surged by 19 per cent, after closing at a six-year low on March 12.
Some fund managers said they expected the downtrend to reassert after any post-war rally, once the negative economic realities kicked in. They added that companies were unlikely to say much about the outlook for profits during the forthcoming first quarter results season.
"Any chance of greater visibility in company's earnings statements will have disappeared as a result of the war," said Standard Life's Fraser.
But some strategists said investors had nothing to fear but fear itself.
"We are close to a turning point in markets," said Simon Goodfellow, equity strategist at ING.
"As soon as the war is won, we expect the index to rally on the prospect of rising M&A activity, an increase in risk appetite, cheap oil, Iraqi reconstruction and recovery growth."
L'Oreal jumped 4.9 per cent after it said it was maintaining its aim of chalking up a 19th straight year of double-digit profit growth in 2003 after earlier reporting growth in like-for-like sales for the first quarter.
Shares in German peer Beiersdorf jumped 8.4 per cent on market talk Anglo-Ducth giant Unilever was set to make a takeover bid for ther makers of Nivea skin cream - a move some sources said was unlikely.
Ahold, the world's third largest retailer, rose 4.7 per cent after the Dutch group said it planned to sell all of its South American supermarket operations to cut its debt pile and help draw a line under an accounting scandal at its operations in the region.
Insurers were bolstered by an upgrade for reinsurers to "overweight" by investment bank J.P. Morgan, which said concerns over funding in the reinsurance industry had been priced into the share prices of leading firms.
Swiss Re led the climbers with a rise of 5.2 per cent. Also higher were construction, media, and banking stocks. But French mobile phone company Orange fell six per cent amid speculation the group would post poor subscriber growth figures for the first quarter.
AstraZeneca dropped 3.3 per cent after two brokerages cut their recommendations on the stock.
The group also played down a report that a quarter of patients with raised liver enzymes discontinued taking its experimental drug Exanta in a trial.
In New York, the Dow Jones industrial average was flat and the tech-laden Nasdaq Composite added 0.3 per cent.
Earlier, the Institute of Supply Management's US non-manufacturing index fell to 47.9 from 53.9, when a fall to 52.3 had been expected.
That represented the first contraction in the US non-manufacturing sector since January 2002, having fallen below the key 50 mark.