European shares have been swept higher by a wave of liquidity, with London shares hitting a record high following bid speculation and stronger-than-expected jobs data from the United States.

US Treasuries and bond futures dropped and the Dow hit record highs after news that the US unemployment rate had fallen in December, with payroll employment growing at its fastest rate for more than a year. The Dow closed at an all-time high of 9,643.32, up 105.56.

Britain's FTSE 100 stock index initially surged to a record high, breaking new ground for the first time in six months and extending a new year rally driven by falling interest rates on both sides of the Atlantic.

However, the ISEQ index of Irish shares did not enjoy a similar rise, ending only fractionally higher as investors undertook a bout of profit-taking.

London's benchmark index eventually finished up 0.75 per cent, just short of its record closing peak set on July 20th last year.

"We saw a little pull-back in the afternoon, but it was only a case of the market consolidating a very strong position," said the head of equity trading at a leading European investment bank.

London's bullish performance, interrupted by a mid-morning dip, was matched in bourses throughout the continent.

Frankfurt shrugged off a rise in German unemployment, the Xetra DAX share index shooting ahead more than 2 per cent in afternoon trade before retreating to close up just 0.5 per cent.

French stocks also tracked Wall Street and finished 0.35 per cent higher after surrendering early gains. In currencies, the bullishness on the dollar was tempered as the US currency failed to prosper against the yen. Speculation that Japan's debt rating was about to be downgraded had lifted the dollar against the yen overnight, but its rally fizzled out after international ratings agencies denied the rumours.