European equities recovered from morning lows and held on to some impressive gains as the US rate cut and the promise of share buybacks averted an early rout on Wall Street. The FTSE Eurotop 300 index, which fell 8.6 per cent between the start of trade last Tuesday and Friday's close, rallied after the 50-basis-point rate cut. In late afternoon trade, it registered again of 2.9 per cent.

The US interest rate reduction, the eighth this year, takes the key federal funds rate to 3 per cent, its lowest level since January 1994. News of the ECB's cut came as most European bourses were closing. The airlines sector, by far the hardest hit group last week with a loss of 22 per cent, was mixed but volatile.

The sector has fallen more than 45 per cent this year. Insurers, which had a turbulent time as the market tried to assess the impact of the destruction of the World Trade Centre on the reinsurance sector, recouped some of last week's 14.6 per cent losses. The oil and gas sector, which held its losses last week to 7 per cent as the oil price spiked in the wake of the New York and Washington attacks, was also higher.

Late in the day, the index was 3.4 per cent higher. Germany's Dax index which dropped below 4,000 in morning trade to its lowest level since October 1998, rallied strongly later to show a gain of more than 4 per cent.

In Paris a broadly-based sell-off took the CAC 40 index to its lowest for almost three years, but recovered to close 2.7 per cent higher. Among the airlines, KLM, the Dutch flag carrier, tested levels not seen since November 1990, before rebounding.

The shares finished with a gain of 7.6 per cent at €9.90. Air France, by contrast, slumped 7.1 per cent to 10.20 on news that US peer Continental Airlines was laying off 12,000 staff and that it could file for bankruptcy. The US airline had slashed flight schedules after attacks in New York and Washington.