Europe shares at 3-month peak on US data, oil dip

Encouraging US economic data and a new dip in oil prices helped Europe's top indexes end the week at three-month highs, with economy-sensitive technology issues and car makers benefiting most from the more bullish sentiment.

Telecoms equipment maker Alcatel led technology shares higher amid hopes that sustained economic growth may prompt companies to spend more on technology. This helped lure investors back into a sector which has systematically underperformed the market since the start of the year.

Chemicals also shone. Troubled French firm Rhodia surged 23 per cent to a five-month high of E1.38 after Belgian drugmaker UCB sold its chemicals division to Cytec Industries for a hefty E1.5 billion ($1.86 billion).

Analysts said bullish comments from Dutch chemicals group DSM on volumes and margins also boosted sentiment.

The FTSEurofirst 300 index of pan-European blue chips ended 1.8 per cent stronger at 1,004.5 points, bringing to 1.2 per cent the index's overall advance this week. This was the index's highest closing level since June 29.

The narrower DJ Euro Stoxx 50 index surged 2.6 per cent to 2,796.

An economic report showing growth in US factory activity had stayed at a healthy pace in September, creating more jobs than expected, helped soothe uncertainty over the economic outlook and the job market.

The data fanned hopes that next Friday's US non-farm payrolls report for September could top economists' expectations for a rise of 155,000.

"The ISM data was bang in line with expectations, but what stands out is the gain in the employment index," said Holger Schmieding, a senior economist at Bank of America in London.

"This bodes pretty well for the next employment report. Despite market worries that high oil prices could slow down the US economy significantly, we still see strong growth."

The health of the US job market has been a key concern for investors, especially as the record price of oil threatens to hamper spending. Consumer spending accounts for about two-thirds of the economy.

Stephen Gallagher, economist at SG Securities, said the US economy was emerging from a soft patch as a healthy gross domestic product growth will eventually help employment pick up further.

Dealers said the successful placement of a spate of large equity sales was a pointer to the market's underlying strength and investors' appetite for stocks.