European Shares Up; Dollar Holds On to Gains

European shares closed at 16-month highs Monday, boosted by technology and oil stocks, while the dollar held recent gains against the euro before a meeting of euro zone finance ministers.

Oil prices rose as traders fretted over cold weather in the U.S. and the prospect of tighter OPEC supplies in the second quarter.

U.S. markets were closed for the Martin Luther King Day holiday.

The FTSE Eurotop 300 index of pan-European blue chips ended up 0.3% at 992.9 points, its highest close since Aug. 27, 2002, on modest turnover of 2.3 billion euros.

The narrower DJ Euro Stoxx 50 index closed up 0.5% at 2,879.9 points, an 18-month closing high and a gain of 56% from the six-year low it hit last March.

“Valuations no longer look cheap because the market is up a long way off its base but the earnings outlook looks good,” said Stewart Higgins, a director at fund manager Martin Currie in Edinburgh. “The two clouds on the horizon are euro strength, which will cause earnings downgrades, and/or U.S. interest rates going up, both of which we are watching closely.”

European stocks were buoyed by gains in technology shares including German chip maker Infineon and in oil majors.

Companies with a high proportion of earnings made in U.S. dollars benefited as the currency continued its fight back against the euro, which hit a one-month low under $1.24.

However, retail stocks were under pressure and media stocks edged lower after a powerful run since the start of the year.

Energy stocks, big underperformers this year, found favor as crude oil prices held firm because of cold weather in the United States and indications the Organization of the Petroleum Exporting Countries could tighten supply further at its next meeting.

BP rose 2.4%, Shell gained 0.9% and Italy’s Eni rose 1.3%.

Britain’s largest insurer, Aviva, was another top blue-chip performer, gaining 3.9% as broker UBS upgraded the stock to “buy” ahead of a sales update today.

Germany’s Infineon was a positive influence on technology stocks despite some concerns about valuations in the sector, which hit a 19-month high.

Infineon gained 1.5% after beating market expectations for the December quarter and forecasting continued profit as the industry recovers from its worst crisis.

Staffing agency Adecco also rebounded from recent weakness linked to accounting problems at the group’s North American unit.

Adecco shares rose 3.9% after media reports said no fraud had been discovered by investigators studying its books.

London’s FTSE 100 closed 0.7% firmer, while Paris’ CAC-40 ended up 0.5%. In Zurich, the SMI rose 0.1%, and Frankfurt’s DAX closed 0.7% higher.

In Tokyo, the Nikkei ended 1.7% higher at 11,036.33, its highest close since Oct. 20, on expectations of strong quarterly earnings.