Short war hopes lift eurostocks

European shares were set for their best close in two months late yesterday, as investors continued to bet on a short war in Iraq and unwound hedge trades, buoyed by reports of major US-led military advances.

Volatile technology and insurance stocks such as German chip maker Infineon and Dutch bancassurer ING led the gainers as investors sought maximum exposure to a rally that has boosted regional indices by almost a fifth in less than two weeks.

However, scepticism over the sustainability of any gains continued to run deep, as strategists recalled previous rallies that have petered out since shares peaked in 2000 during the dot-com bubble and as they warned of challenges still facing the global economy - war or no war.

"Most of the energy driving markets currently is the unwinding of speculative 'disaster' hedges rather than any huge new fundamental statement of intent made by real money managers," said Jonathan Wilmot, global strategist at CSFB.

"Few of our clients want to make any big bold bets on the sustainability of this rally."

By 1640 GMT, with only Frankfurt still trading officially, the FTSE Eurotop 300 index of pan-European blue chips was up 3.4 per cent at 813.4 points - potentially its best close since January 21 - while the narrower DJ Euro Stoxx 50 index jumped 4.2 per cent to 2,247 points.

The benchmark Eurotop 300 is up 7.6 per cent so far this week, having rebounded almost 19 per cent since plunging to its weakest close in more than six years on March 12.

Brent crude oil prices have slumped by around 25 per cent to about $25 a barrel over the last fortnight, and the flagging dollar has recovered about five cents against the euro over the same period.

Sentiment was buoyed as US armoured columns raced deep into Iraq and British marines seized vital oil facilities in the South.

But White House spokesman Ari Fleischer warned that the conflict could still be "lengthy and dangerous".

Volume was relatively good and dealers said activity was boosted by double- and triple-witching - the simultaneous expiry of stock index futures, stock index options and individual stock options - across the region.

Europe's biggest insurance group ING rose 11.4 per cent, while France's AXA and Britain's Prudential jumped more than 7.5 per cent each, as investors cheered a revaluation in the insurance sector's huge equity holdings.

Banking stocks also rose, with BNP Paribas, Deutsche Bank and UBS all gaining more than five per cent each.

Shares in German travel firm Tui surged 8.7 per cent as investors bet on a return to normal holiday patterns in the event of a swift end to the Iraq crisis.

Airline stocks also fared well for similar reasons. National flag carriers British Airways and Air France jumped 7.3 per cent and 6.1 per cent respectively, while no-frills airlines Ryanair and EasyJet surged 8.8 per cent and 8.6 per cent.

Saint-Gobain rose 8.2 per cent to 27.2 euros after Merrill Lynch raised its price target on the stock to 45 euros from 40 euro citing reduced asbestos litigation risks.

The French building materials group late on Thursday also announced plans to up its dividend payout and said activity during the first two months of 2003 was in line with its modest annual growth targets.

However, Spain's Inditex fashion retailer sank 19.7 per cent amid a slew of broker downgrades on disappointing results.

In New York, the Dow Jones industrial average rose 0.8 per cent and the tech-laden Nasdaq Composite added 0.2 per cent.

Economic data were overshadowed. US consumer prices for February posted their biggest gain in more than two years as food and energy costs surged.

But strategists were in no doubt that economic trends would determine the market's long-term direction, still wary of the fragile state of the global economy and of companies' difficult task of boosting profits.

"People will not make up their minds about the sustainability of this rally until they are able to take the temperature of the world economy, once this war is no longer the focus," CSFB's Wilmot said.