Leading bourses rallied after news of unexpectedly flat German industrial output data helped lift the bond markets.

The FTSE Eurobloc 100 index gained 0.6 per cent to 1,025.39, and the FTSE Eurotop 100 rose 0.8 per cent to 2,833.39. The broader FTSE Eurotop 300 was up 1 per cent at 1,240.78.

Frankfurt pared early gains. The Xetra Dax index closed 18.82 higher at 5,019.69, but was well short of the 5,047.43 high of the session.

Veba lost €1.43 to €57.30 on earnings concerns after the utility's interim statement hinted at tough trading in electricity supply, the group's core business.

Henkel rose €2.20 to €69.22 following an earnings upgrade from Goldman Sachs, which took a positive view of this week's interim results from the chemicals group.

Insurers were strong, partly reflecting half-year results from UK leader CGU that were at the top end of expectations. Allianz rose €4.10 to €242 and Munich Re €1.25 to €170.70.

Paris also lost ground in late trading after reaching a high of 4,292.89; the CAC-40 index ended up 23.60 at 4,268.95.

Defence leader Thomson-CSF jumped €1.15 to €31.95 on the news that it was part of a consortium close to a missile contract. A strong buy recommendation from CS First Boston also helped sentiment.

Pechiney shot ahead, having given an initially muted welcome on Tuesday to the news of three-way merger talks with Algroup of Switzerland and Canada's Alcan. The shares gained €2.80 to €53.85.

Amsterdam saw active trading in chemicals leader Akzo Nobel, where news of a further round of corporate activity sent the stock sharply higher. Akzo, which is selling a fibres operation, rose €1.95 or 4.6 per cent to €44.75 after announcing plans to take over the veterinary arm of Germany's Hoechst.

The positive opening on Wall Street for the Nasdaq composite index helped lift Philips, which rose €2.90 to €89.10. The AEX index ended 5.06 higher at 541.85.

Zurich was broadly higher, although Alusuisse gave ground on profit-taking as the company confirmed plans to merge with Alcan and Pechiney. The SMI index picked up from Tuesday's low for the year to finish 69.3 higher at 6,686.0.