European shares close at 32-month highs

European share indexes closed at 32-month highs yesterday, buoyed by well-received results from telecoms company TeliaSonera and food group Danone, and by a rally on Wall Street.

US stocks reversed early losses to trade higher by midsession following news of a two-for-one stock split for Apple Computer.

Heavyweight banking stocks continued their strong recent run, led by a 1.8 per cent gain for Societe Generale, which hit a record high as brokers raised targets after the French bank beat profit estimates.

The FTSEurofirst 300 index of pan-European blue chips closed 0.9 per cent higher at 1,097.4 points.

The index finished the week with a gain of about 1.4 per cent, its third consecutive weekly rise.

"Risk appetite is high, so no wonder equities are hitting new highs, but we still believe that people are underestimating potential negative consequences from a declining cycle," said Jacob de Tusch-Lec, European equity strategist at Merrill Lynch.

"Globally, we are seeing that earnings indicators are turning negative, but the alternative asset is not there," he said.

The narrower DJ Euro Stoxx 50 index rose 1.2 per cent to 3,080.1 points.

Earnings reports for the fourth quarter continued to come largely in line with expectations, leaving the focus on company outlooks.

"We're beginning to see the first signs of companies saying that raw materials are causing them some problems - we saw it with Renault the other day and Valeo this morning," said Andrea Williams, head of European equities at Royal London Asset Management.

Shares in Valeo closed three per cent firmer after the company posted a drop in 2004 profits due to soaring costs for steel and other inputs, but said it was hoping for sales growth of two to three per cent this year.

"Overall we're still pretty happy with the market. We still think it looks reasonable value even though it has come up quite a bit," Williams said, adding that bonds looked over-priced.