Eurostocks extend London-led gains after US data

European blue chips extended their recovery from six-year lows yesterday afternoon, after UK insurers like Aviva were given some respite by regulators and as Wall Street got a lift from encouraging economic data.

But gains were capped after Sweden's loss-making mobile network giant Ericsson gave a bleak outlook, while the looming threat of war continued to keep a lid on any broader buying interest.

"Getting the war out of the way at a modest cost and over a short time frame will bring some colour back to the markets," said Robert Kerr, European equities strategist at Bank of America.

By 1514 GMT, the FTSE Eurotop 300 index of pan-European blue chips was up 1.6 per cent at 810 points while the narrower DJ Euro Stoxx 50 index was 1.1 per cent higher at 2,272 points.

The Eurotop 300, coming on the back of three successive down years, ended January more than seven per cent down - its worst start to the year since the index's records begin in 1986.

In New York, the Dow Jones industrial average rose 0.3 per cent and the tech-laden Nasdaq Composite slipped 0.2 per cent.

The Institute of Supply Management's manufacturing index - a key gauge of the world's biggest economy - fell to 53.9 in January from 55.2 in the previous month, confirming that the US manufacturing sector probably grew for the third straight month in January, but at a slower clip than in December.

That was slightly better-than-expected and showed new orders had slipped marginally but remained at a healthy level.

"The data is reassuring. Its not running away and its not desperately strong, but on the other hand its not that weak either. It's well into territory which implies expansion of manufacturing activity," said John Shepherd, economist at Dresdner Kleinwort Wasserstein.

Separate data also showed US spending on new construction jumped an unexpectedly large 1.2 per cent in December because of a surge in residential building.

London's FTSE 100 index surged 3.0 per cent and easily outperformed the rest of the region after the UK's finance watchdog said on Friday it may grant waivers to life insurers to prevent them having to sell equities over fears they may risk breaching solvency margins amid falling stock markets.

That helped boost the likes of Royal & Sun Alliance, Aviva, Prudential, Legal & General, and Friends Provident by between six per cent and ten per cent each.

Sweden's Ericsson was Europe's biggest blue chip loser, sinking by more than 10 per cent after the world's largest maker of mobile networks reported a wider-than-expected fourth-quarter loss and said current quarter sales could tumble by more than a third and threaten its full-year forecasts.