European shares end higher as oil eases

A near three per cent fall in oil prices and buoyant German carmakers such as BMW helped European shares end yesterday at a new three-year high, but nerves ahead of a US interest-rate decision capped market gains.

The Federal Reserve yesterday raised US interest rates for an 11th straight time, signalling more increases to come and saying Hurricane Katrina will provide only a temporary setback to the broad economy.

Retailers also weighed after Tesco gave an outlook clouded by higher oil prices and weak UK consumer confidence, while L'Oreal fell after Estee Lauder warned first-half sales would be slower than previously expected.

Other standout movers included Deutsche Bank, up 2.2 per cent after US rival Goldman Sachs posted record quarterly earnings, while gold prices near 18-year highs and a broker upgrade by Smith Barney pushed shares in mining group Anglo American 2.4 per cent higher.

The FTSEurofirst 300 index of pan-European blue chips ended 0.1 per cent higher at 1,218.06 points, its highest closing level since May 17, 2002. The narrower DJ Euro STOXX 50 index added 0.6 per cent to 3,375.8 points.

Oil prices slid towards $66 a barrel, cheering investors who are wary that surging energy costs will crimp consumer spending and corporate profits, but the sharp fall weighed on heavily-weighted oil stocks such as BP.

Oil market traders are watching the Gulf of Mexico where a storm threatened to disrupt supply less than a month after the devastating Hurricane Katrina.

Market players also awaited a statement from US Federal Reserve policymakers, which were expected to stick to a course of gradual rate rises despite some calls for a pause in the wake of Hurricane Katrina.

Shortly before the US central bank's Federal Open market Committee began meeting at 1300 GMT, fresh government data showed a dip in new housing construction in August but not enough to indicate a threat to expansion.

Around Europe, oils-heavy FTSE 100 index closed 0.2 per cent lower in London, while Paris's CAC 40 and the Swiss Market Index added 0.6 per cent and 0.5 per cent, respectively.