Strong demand for old economy stocks sent Frankfurt higher. The Xetra DAX index broke briefly above 7,700 before closing up 57.42 at 7,644.55.

Motor shares pushed ahead as investors threw off earnings doubts created by last week's disappointing results from Volkswagen. DaimlerChrysler continued to prosper in the wake of Monday's bumper profits while BMW rose 55 cents to €26.66 following a strong sales statement.

Banks were hesitant ahead of tomorrow's meeting of the European Central Bank monetary policy committee. Deutsche Bank shed nine cents at €88 and Commerzbank 57 cents at €37.53. Dresdner Bank lost 59 cents at €49.51 after a downgrade at Deutsche Bank, which sees the shares overvalued with at least 10 to 15 per cent of downside risk. Paris closed higher, boosted by a positive opening on Wall Street and a weak euro which was seen as attracting dollar-holding investors to buy relatively cheap European shares. The CAC-40 gained 88.23 to 6,190.96.

Cap Gemini's merger with Ernst & Young helped its shares gain another 11.5 per cent, rising €29.50 to €286. The current bourse star has now doubled in the last four months. Retailer Carrefour gained 5 per cent on news of its business-to-business alliance with Sears and Oracle of the US. It closed at €7.50, up €157.5.

Milan resumed its march into record territory, reassured by Wall Street and boosted by banks, which returned to the limelight after several months of underperformance.

Amsterdam witnessed a dramatic bounce for retailer Ahold and the AEX index gained 9.74 at 664.28.

Ahold shares, which stood at €38.80 last April, jumped to €24.46 before closing €2.32 or 10.6 per cent better at €24.12.

Madrid shares were generally higher as construction stocks continued to rally. Building and services company Ferrovial rose €1.14 to €17.36 after strong results on Monday. The Ibex 35 index gained 118.8 to 12,585.5. Helsinki ended higher as Nokia bounced back from Monday's losses. Nokia closed at €207, up €2.50. The Hex general index closed up 129.66 at 16,302.55.