European bourses reach 15-month high

European shares hit a near 15-month closing peak, but gains were capped after US data showed sales of newly built single-family homes unexpectedly fell to their lowest level in seven months.

The FTSEurofirst 300 index of top European shares ended 0.2 percent higher at 1,037.34 points, the highest close since Oct. 3 last year, after ranging between 1,034.25 and 1,041.21 points in thin pre-Christmas trading.

Total trading volume in shares in the index, which is up 24 percent this year and has surged 60 percent since hitting a record low in March, was just 41 percent of the three-month daily average.

Financial stocks were among the top gainers, with Standard Chartered, HSBC, Barclays, Societe Generale, Credit Agricole and Natixis rising 0.2 to 1.5 percent.

Allied Irish Banks jumped 9 percent. The bank's executive chairman said, before a shareholder vote on whether to join Ireland's ``bad bank'' scheme, that its further state capital needs will become clearer over the next three months.

European shares pared gains in late session after US new homes sales data came as a setback for the housing market, which has been showing strong signs of stabilisation after a three-year slump. Housing was the main trigger of the worst US recession since the 1930s.

``It (data) shows that investor sentiment is still very fragile. We are going to continue to see volatile numbers across the board,'' said Henk Potts, strategist at Barclays Wealth.

``If the extraordinary support is withdrawn, then that will create a difficult environment from a growth perspective in 2010,'' he said, referring to the fiscal and monetary measures taken by governments and central banks to combat the global downturn.

Charts, however, suggested the start of another move on the upside for share prices. The index confirmed the triggering of a bullish symmetrical triangle in which it has consolidated for some weeks.

The index appeared to have cleanly broken above its major resistance around 1,023 points, the 38.2 percent retracement of the bear market that began in mid-2007. 

The triangle has a target of 1,090 points, and the break of the retracement level suggested a higher medium-term target of 1,140 _ the 50 percent retracement. 

Investors got some comfort from data showing US consumer spending rose for a second straight month in November as incomes recorded their biggest gain in six months, but the new home sales numbers were a reminder the economic recovery would be bumpy.

French consumer spending also dropped slightly in November compared with the previous month, narrowly undershooting expectations as shoppers splashed out on cars but cut back elsewhere.

Miners were also in demand, tracking a rise in metals prices. Copper climbed more than 1 percent partly on looming strike in Chile. BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and ENRC rose 1 to 3.8 percent.

``There's some window dressing going on,'' said Justin Urquhart Stewart, director at Seven Investment Management.

``Some fund managers are making sure they've got good equity positions for the end of the year.

``There's still momentum in there, and it may carry on into the new year. But the further we go on with this, the more there will be a correction. Markets don't go up in a straight line.''

Drugmakers, however, lost ground. GlaxoSmithKline, Merck, Roche Holding, Genmab and Elan Corporation fell 0.1 to 2.1 percent.

Switzerland's Novartis agreed to buy privately held US group Cothera for $120 million, gaining rights to a heart failure drug and aiming to diversify sales as its top-selling medicine loses exclusivity. Its shares were flat.

Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 rose 0.2-0.8 percent.

- Reuters