Paris closed within six points of the day's high, thanks to a strong performance by banks and oils. The CAC-40 index finished up 75.80 at 3,423.78 in heavy turnover.

Oils pushed ahead strongly on improving international oil prices and a certain amount of investor switching out of the big utilities. Brent Blend, the North Sea marker price, has recovered by more than a sixth this month. Banks were a particularly robust market, largely on the latest indication of an early reduction in US interest rates.

The diversified utilities, seen lately as one of the more defensive plays in the French market, lost some of their shine after a sudden uprush of regulatory worries in Britain, where both Vivendi and Suez Lyonnaise des Eaux have extensive operations.

Frankfurt ended 3.8 per cent higher as a number of short positions in leading stocks were said to have been closed. The Xetra DAX index ended 173.73 ahead at 4,722.96.

Amsterdam continued to recover, adding 26.71 to 970.60 on the AEX index as investors continued to switch out of the bond market for the second day running.

Zurich saw support from a stronger dollar and gains on Wall Street, and the SMI index jumped 213.4 or 3.5 per cent to 6,324.5.

Hopes of lower interest rates lifted banks and insurers, while short covering also provided support.

Milan was hit by budget uncertainty, but the Mibtel index managed to close up 279 or 1.5 per cent to 19,193.

Fiat rose 6 lire to L4,613, strong in spite of a profits warning on Tuesday. Eni climbed L274 to L10,323 on alliance speculation and higher oil prices. It released first-half earnings ahead of market expectations and Goldman Sachs stayed positive on the shares.