European stock markets touch new peaks amid signs of recovery

EUROPEAN stock markets touched record highs yesterday as optimism about prospects for next year took hold. Financial and high-technology stocks led share prices higher in Frankfurt, Paris, Milan and Madrid.

Economists have been revising up their forecasts for growth in Euroland next year. Jean-Francois Mercier of Salomon Smith Barney said there were more and more signs of boom in the euro area. "The latest batch of manufacturing data continue to point to strong growth ahead in the Emu bloc," he said.

Otmar Issing, the chief economist of the European Central Bank, predicted the gap between European and US growth that has weakened the euro since its launch a year ago would start to narrow. "We are convinced that next year and in 2001 that difference will disappear," he said in an interview published in the Portuguese newspaper Diario Economico.

He added that price stability would bolster confidence in the currency, which has fallen 15 per cent against the dollar since its launch on 1 January 1999. He said the ECB was ready to use monetary policy to correct any inflationary trends that might appear in Europe, but did not see that as a problem for the time being.

However, analysts do think an increase in European interest rates is on the cards in the early part of next year. This concern took bond markets down slightly yesterday.

In the UK, campaigners for British membership of the euro welcomed the news of the economic resurgence on the Continent. Kenneth Clarke, the former Chancellor of the Exchequer, said the new currency had been an "undoubted success".

Mr Clarke said: "It is preposterous to suggest that because the euro has fallen in value against the dollar it has been a bad euro in its first year. All the evidence is that the Continental economies have benefited from a sensible value that reflects the strength of the American economy."

The campaign group Britain in Europe published a round-up of forecasts showing a consensus that Euroland GDP will grow by about 3 per cent in 2000, up from just over 2 per cent this year. Most analysts also expect the currency to climb to around $1.15 by the end of next year, close to its launch value. Simon Buckby, campaign director, said: "Not only is the euro itself expected to rise, but also its weakness so far has made exports from the euro-zone cheaper, boosting the economy."

Deutsche Bank and Allianz were amongst the strongest performers yesterday. Frankfurt's Dax index ended up 0.8 per cent at 6,837 yesterday, although Mannesmann shares were down slightly after it denied reports that it was seeking a friendly bid to avoid a hostile takeover by Vodafone AirTouch.

In France, Credit Lyonnais was among the strongest performers, as rumours of a potential bid emerged. A fall in the oil giant TotalFina, who chartered the tanker responsible for the oil slick off the Brittany coast, dragged the CAC-40 index in Paris down to close off 0.31 per cent at 5,834.5. The blue chip index touched a record 5,922.

The London stock market remains closed until tomorrow.