Europe stocks end week on high

LONDON, England (Reuters) -- European shares turned sharply up in late trade on Friday and headed for their biggest weekly gain in nine months, led by the insurance sector as solvency fears eased and as Aegon drew more buyers, having clarified its recent shock profit warning.

But after a second week of gains, strategist opinion was still mixed and ranged from the hopeful to the downright glum.

"The recent volatility reflects the debate in the market but I think we may well have touched bottom in the current cycle," said Robert Kerr, European equities strategist at Bank of America, citing the fact pan-European valuations had tumbled to 12.2 times 2003 earnings from a high of 19.4 times in April.

Kerr said the bottoming out process would be drawn out but was unlikely to be as long as the topping out process seen at the height of the TMT bubble, which lasted from March 2000 to August 2000.

Less optimistic were global strategists at Dresdner Kleinwort Wasserstein, who raised their cash weighting to "very overweight" and slashed their weighting in European shares, citing an expected downturn in world economic growth after a spate of poor U.S. and European data.

Investors next week will get a bit more insight into how the world's biggest economy is faring, with the publication of a welter of U.S. reports, including industrial production, retail sales, and business inventories data.

The focus will also be on next Tuesday's rate-setting FOMC meeting amid growing expectations that the Federal Reserve may change its assessment of risks to the U.S. economy to one of "weakness" from "balanced."

At 1610 GMT, with most markets closed, the FTSE Eurotop 300 index of pan-European blue chips was 1.2 percent higher.

That left the benchmark about 5 percent up on the week -- its best weekly performance since September -- although the index is still down by about a quarter so far this year.

The narrower DJ Euro Stoxx 50 index rose 1.6 percent.

In New York, the Dow Jones industrial average was down 0.2 percent and the tech-focused Nasdaq Composite was off 0.7 percent.

Casting a shadow on Wall Street was news overnight that bankrupt telecoms group WorldCom Inc. had discovered another $3.3 billion in earnings errors, almost doubling the previously disclosed total.

The DJ Stoxx insurance index topped the sectoral leaderboard, adding more than 3 percent, as investors drew comfort from the apparent easing in the market's slump, which has eaten deep into insurer's equity holdings and damaged their solvency ratios.

Shares in Aegon surged another 7.3 percent and was the biggest blue chip gainer, after the Netherlands' second-biggest insurer on Thursday clarified where and when it will take the additional provisions and writedowns that had forced it last month to hack its 2002 forecasts.

ABN AMRO also helped after the investment bank reiterated its "buy" rating on the stock.

Fellow insurers Axa of France, Britain's Aviva (formerlyknown as CGNU) and Prudential, and Swiss Re, added more than 5 percent each.

Meanwhile, shares in embattled German financial services provider MLP were up 13 percent on takeover talk, which failed to dissipate even when the company said it knew nothing about a bid.

The stock was also supported by news investment bank Merrill Lynch initiated coverage of MLP as a "strong buy."

Chemical stocks were also snapped up as investors warmed to news Dresdner Kleinwort Wasserstein had lifted its rating of BASF to "buy" from "hold," after Europe's biggest chemicals group posted solid results on Thursday.

Shares in BASF added 1.45 percent and those of Dutch rival Akzo Nobel jumped more than five percent.

Ericsson topped the fallers with a loss of 2.8 percent, reflecting continued investor doubts over the Swedish telecom equipment maker's prospects.

However, Finnish rival Nokia surged 7 percent to 13.2 euros as investors took stock of its recent good run.

"Investors here don't want to be short over the weekend, it's gone through a key resistance level at 13 euros and for the first time the bears are having a rethink and not selling into every rally," said a U.S. trader.

Franco-German pharmaceutical group Aventis, the second largest stock listed in Paris, was down 3.8 percent after saying it had terminated development of an experimental drug for the treatment of high blood pressure.