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Autos nudge Europe higher

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LONDON, England (Reuters) -- European shares closed firmer on Thursday as Wall Street rallied and Europe's automakers followed the dollar higher but Italy's Parmalat shed nearly half its value as a financial crisis engulfed the food company.

Pan-European benchmarks hit year highs last week, buoyed by a series of strong data in both the U.S. and Europe and improving corporate profitability.

But patchy U.S. employment data, highlighted on Thursday by a surprise rise in weekly initial jobless claims, and a desire to protect gains, have capped indexes in the lead up to Christmas.

"Volumes are drying up. Some people have been closing out their positions to try and lock in the positive performance we've had this year," said Kevin Lilley, a European fund manager at Royal London Asset Management.

"I'm still very positive on the market personally and I don't want to close out my positions. I'm running long cyclical -- overweight virtually all cyclical sectors and underweight virtually all defensive sectors -- and while the temptation is to neutralise those for the end of the year, the problem is I would be buying the same stocks on January 1."

Cyclical stocks have led markets from the six-year lows they plumbed in March but have underperformed in the past month or so as investors square their books or seek opportunities in sectors which have lagged the rally, such as telecoms.

The FTSE Eurotop 300 index of pan-European blue chips ended 0.5 percent higher at 938 points on moderate turnover of 2.7 billion euros as rising stocks outnumbered decliners by around two-to-one.

The narrower DJ Euro Stoxx 50 index closed up 0.9 percent at 2,685 points, near its highs for the session.

"As the economic recovery accelerates and continues to build a better head of steam, we should see the stock market rally gain more momentum," Bear Stearns said in a research note.

A second straight session of gains for the battered greenback provided some respite for European exporters and U.S. dollar earners, which suffer from a strong euro.

Auto makers, highly exposed to the massive U.S. market, were a major beneficiary despite data showing car sales in western Europe dipped in November. A 2.8 percent rally for Volkswagen and a three percent climb for BMW led the sector higher.

Having touched a life high of $1.2276 on Tuesday, the euro was last trading around $1.2150.

French chip maker STMicroelectronics helped tech stocks gain, rising 2.8 percent after a senior official forecast the semiconductor industry to grow for the next two years.

Among the region's top bourses, London's FTSE 100 was the worst performer, closing down 0.1 percent as retailers, banks and miners retreated.

Elsewhere, Paris's CAC-40 ended up 0.8 percent, Zurich's SMI rose 1.1 percent and Frankfurt's DAX closed one percent higher.

In New York at 1651 GMT, the blue-chip Dow Jones industrial average was 0.6 percent higher at 9,978 points, with retailers featuring after strong November sales data. The Nasdaq Composite Index rose 1.2 percent to 1,928 points, spurred by upbeat forecasts from semiconductor firms.

In Europe, Parmalat dived as much as 50 percent and closed down 47.7 percent in very heavy trade after a three-day suspension on the stock was lifted.

During the suspension, Parmalat did not pay a 150 million euro bond on its due date, failed to receive an expected 500 million euro fund payment and had its credit rating slashed by Standard & Poor's, which warned of a potential default.

Retail stocks underperformed, knocked by a profit warning from British budget clothing chain Matalan ahead of the key Christmas season. Matalan shares ended down 16.4 percent.

Europe's biggest car rental firm, Avis, was also punished after warning its 2004 profits would fall short of expectations.

The stock closed down 18 percent, while Belgian car retailer and Avis's major shareholder, D'Ieteren, fell 8.3 percent.

Mining stocks were also weak despite the improvement in the dollar, with London-listed Xstrata slumping 4.5 percent, with peers Anglo-American down 2.8 percent and BHP Billiton off about 2.6 percent.

Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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