European shares ended the first session of the year at a 16-month closing high on Friday as surprisingly strong US manufacturing data cheered investors betting an economic recovery will boost corporate profits.
Technology and telecommunication heavyweights such as Dutch consumer electronics firm Philips and Deutsche Telekom led broad-based gains on Friday, each rising by more than 3 percent.
"It's been a quiet day but the tone is positive. There is a sense that some of the big blue-chips which have underperformed last year's rally may be due for a run," said one London-based trader.
The FTSE Eurotop 300 index of pan-European blue chips ended 1.0 percent higher at 967.9 points, its highest close since August 2002, on scant turnover of just over one billion euros (US$1.25 billion).
The narrower DJ Euro Stoxx 50 index rose 1.3 percent to 2,795.7 points.
European equities surged 11 percent in the fourth quarter of 2003 as investors anticipated companies would wring out bigger profits as the global economy improves.
Data on Friday showing manufacturing activity continued to expand in December helped convince investors the recovery remained on track.
"We've got an economy growing at above-trend rates, with firms still maintaining very tight cost control, and that is flowing into very strong profits growth," said Richard Iley, an economist at BNP Paribas.
Earlier, the Reuters Eurozone Purchasing Managers' Index edged slightly higher above the 50 level that marks expansion, touching 52.4 in December from 52.2 in November.
Around Europe, London's FTSE 100 closed 0.7 percent higher, Paris's CAC-40 ended up 1.1 percent and Frankfurt's DAX closed 1.4 percent firmer.
The Swiss market remained closed to celebrate the new year.
British retailers were hurt by a profit warning from bookseller WH Smith which said disappointing Christmas sales and margin pressure meant it would miss this year's profit forecasts.
WH Smith shares ended down 11.1 percent while its peers HMV and Woolworths fell 1.2 and 0.6 percent, respectively.
Also weaker was British Airways which fell 1.3 percent as it cancelled a second flight from London to Washington due to security fears. It is the seventh time in just over a week that US-bound planes have been grounded due to security concerns.
On the positive side, shares in Adidas-Salomon rose 4.9 percent after the world's second-biggest maker of sporting goods said it expected further profit and sales growth this year.
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