Eurostocks up near fresh 2003 highs

Insurers, technology and telecoms groups lifted European shares back near their highest levels for the year yesterday as investors seized on more encouraging signs that economies were on the mend.

Among the day's standouts, Deutsche Bank rose 2.3 per cent to €57.62 after UBS investment bank raised its rating on the stock to "buy" from "neutral" and set a price target of €68.

GlaxoSmithKline, Europe's biggest drug firm, lagged after a US panel urged regulators to reject its experimental treatment for smokers' cough.

Smaller German rival Altana, which is developing a competitor to Glaxo's drug, gained 2.7 per cent to €50.21.

Share prices are stretched and a retreat is likely because much of the economy recovery story is already factored into the market, analysts said.

Investors moved cash out of economy-sensitive shares such as autos, which had led the market's advance, and into other areas.

"We are seeing a little bit of a return of interest into non-traditional defensive sectors like telecoms," said Clive McDonnell, a strategist at Standard & Poor's Equity Research.

By 1601 GMT, the FTSE Eurotop 300 index was up 0.5 per cent at 923 points, with advancing issues outpacing decliners by about three to two in light volume. The DJ Euro Stoxx 50 index was up 0.8 per cent at 2,635 points.

The index was just eight points shy of its high this year, reached last week when it closed at an 8-1/2 month high after rallying 36 per cent since mid-March.

"Fundamentally a correction is more likely than rotation as the market is overbought. The fact there was no pause in August was a surprise. The longer the correction is delayed, the more likely it will turn into a nasty dip," McDonnell said.

A pullback of five to seven per cent would be normal, he said.

Chartist Tim Parker of StockCube said the market is overbought, with most stocks at the top of medium-term ranges, though there was no big selling in large caps yet.

"Overall we remain invested and exposed but reluctant to be buying the racier end of the market, and the risk is that the large-cap stocks will still be OK as they have not driven the rally," Parker said.

Central bankers from across the world meeting in Switzerland said there were early signs that US businesses are poised to resume capital investment. UK manufacturing output also rose in July at its strongest pace in eight months.

In telecoms, UK-based mobile phone giant Vodafone gained two per cent to 121-1/2 pence, boosted by news that Morgan Stanley investment bank raised its price target on the stock to 142 pence from 134.

UK rival mmO2 rose four per cent to 58-1/4 pence. European chip-related shares rallied after RF Micro Devices , a US maker of chips for the wireless sector, raised its quarterly forecast, providing a signal the telecoms industry may be nearing a recovery.

Dutch chip equipment maker ASML rose four per cent to 15.04 euros, German chipmaker Infineon gained 3.3 per cent to 13.63 euros, and STMicroelectronics advanced 4.3 per cent to 24.51 euros.

European shares also got a boost from the 1.5 per cent rise in the tech-laden Nasdaq Composite in New York to new 2003 highs by the time most bourses shut.

The technology theme continues on Tuesday when European sector leader Nokia gives a mid-quarter update to the market.

Meanwhile, Eurotunnel rose for the fourth straight session and hit its best level since June 2002 as talk of a major buyer resurfaced. The group, which operates the rail link under the English Channel, said it had no comment on the 8.5 per cent share price jump to 1.02 euros in very heavy trading.

Shares of Belgian supermarket chain Delhaize rallied 8.6 per cent to 39 euros after US competitor Albertsons reported earnings that beat estimates. Delhaize does most of its business in the United States.

The media sector was swiped by a 4.3 per cent fall to 245-1/2 pence at news and information group Reuters after reports the company had lost some business with major client Citigroup.