European stocks end at fresh 21/2-year highs

European shares closed at a fresh 2-1/2-year peak yesterday to chalk up a 2.6 per cent gain for the week, in a broad-based advance as generally encouraging economic news and earnings bolstered investors' appetite for equities.

Oil stocks were strongest as crude oil prices stabilised and shares in Royal Dutch/Shell bounced back from Thursday's beating.

UK drinks group Allied Domecq rallied 4.6 per cent on speculation that the world number three in spirits, France's Pernod Ricard, was mulling an approach. Both companies declined to comment, with Pernod shares ending up 0.6 per cent.

The FTSEurofirst 300 index closed up 0.9 per cent at 1,082.44 points, hitting its highest level since the start of July 2002. It is up 2.6 per cent for the week and 3.8 per cent for the year.

Dutch retailer Ahold gained 4.3 per cent on news it would cancel a three-year bank credit facility it had obtained to shore up its finances after an accounting scandal.

Federal Reserve Chairman Alan Greenspan's comments that market forces and tighter US fiscal policy should stabilise, and might even cut, the record US trade gap led to a rise in the dollar, which was also positive.

"Greenspan may have helped a little bit, and the payrolls data was constructive because while the Fed will continue to raise rates, it will do so in a way that does not upset the market too much," said Steve Barrow, a strategist at Bear Stearns investment bank.

The Fed raised US rates on Wednesday. On Thursday, US data showed that employers added just 146,000 jobs in January when 190,000 had been expected, but the unemployment rate fell to its lowest level in more than three years to reassure consumers.

There was some good economic news in Europe as German manufacturing orders in December posted their biggest monthly gain since 1991.

The DJ Euro Stoxx 50 index ended up 0.9 per cent ahead at 3,037.13 points.

The technology sector was among the best performers yesterday, with chip-related shares such as ASML and Philips gaining after brokerage upgrades on US semiconductor groups.

Akber Khan, director of Global Equity Focus at Deutsche Bank, said funds that took a long-term view of the market were returning as they took a positive view.

"By and large the long-only investor base is much more active this year and they are not the only ones to be more positive. There is greater appetite for risk and growth," Mr Khan said.

The German VDAX "fear gauge", which measures market volatility, hit a lifetime low yesterday, a sign that investor nerves were steadying as they regain an appetite for equities.

"There has been lot of bid talk that has helped in different parts of the world and that is one thing that has spurred some of the hedge funds on," Mr Khan said.