Expectations that eurozone interest rates could rise earlier than forecast rattled equity investors on Thursday, with shares in peripheral eurozone states hit hardest on concerns that higher lending rates would hit the fragile recovery.
However, the wider equity market got support from confidence in the strength of the US labour market after data showed weekly jobless claims dropped to a 2-1/2 year low, setting a positive tone ahead of Friday's keenly-watched non farm payrolls report.
A pull-back in crude oil prices from recent highs also reassured investors, after Venezuela said the Libyan government has accepted a proposal for an international commission to seek a negotiated solution to its crisis.
The pan-European FTSEurofirst 300 share index closed 0.2 percent higher at 1,155.94 points, but dropped from earlier highs of 1,166.01 points after hawkish comments from the European Central Bank (ECB) following its monthly meeting. Spain's IBEX index was the biggest faller among its peripheral peers, down 0.7 percent as concerns grew over the implications of higher interest rates on the highly indebted country.
Spanish lenders were on the back foot, with Banco Santander off 1.7 percent. Conversely, the London market's FTSE 100 index jumped 1.5 percent, underpinned by strength in heavyweight mining firms as the sector recouped losses from earlier in the week on reduced worries that higher energy prices would hamper economic recovery.
Technical analysts said the medium-term outlook for European shares was still bullish and saw more gains on the horizon for the euro zone's blue chip Euro STOXX 50 index, which rose 0.4 percent to 2,969.24 points on Thursday. Gains in technology shares helped the market push higher, with Alcatel-Lucent rising 6.4 percent, as traders cited market talk of a potential take-over bid from a Chinese company.
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