UK shares look set for a happy new year after European boost

Shares in London are expected to usher in the new year with fresh gains this morning after Europe's stock markets made a positive start to 2006.

Financial Spreads, the City bookmaker, is calling the FTSE 100 to open around 7 points higher on the back of improvements across the Continent.

While traders were not yet back at their desks in London, New York and Tokyo, all but one of the European markets open for business gained ground.

France's Cac-40 advanced 39.69 points to 4,754.92. In Germany, the Dax 30 rose 41.72 points to 5,449.98.

French gains were driven by a renewed appetite for car makers. New car registrations there fell 1.1 per cent in December from a year ago, but that was still better than had been feared. Jerome Forneris, a Marseilles fund manager, said: "This shows the start of a recovery."

Relief among investors spurred both Renault and Peugot Citröen. Renault investors took further heart from strong monthly sales figure from a South Korean subsidiary.

French sales of Germany's DaimlerChrysler, the world's fifth-biggest car maker, surged 28 per cent in December compared with a year ago.

France's biggest technology companies were also in demand among bargain hunters, with the telecoms equipment maker Alcatel, France Telecom and the electronics maker Thomson all marked higher. It was said that Thomson also benefited from signals of solid sales of consumer electronics over the Christmas holiday. Europe's biggest consumer electronics maker, the Dutch group Royal Philips Electronics, advanced too.

Europe's technology companies had a dismal 2005, after investors were spooked by a rash of costly acquisitions intended to bolster growth. France Telecom was among the 10 worst performing European companies after its shares tumbled 13 per cent. It also lost out on Telindus, the Belgian network integrator, which agreed yesterday to a €594m (£408m) takeover by Belgacom, the Belgian state-owned telephone company.

A late surge in oil prices in New York on Friday amid concerns over supplies encouraged buyers of oil producers yesterday. The Anglo-Dutch giant Royal Dutch Shell, Total of France and Spain's Repsol were all chased higher.

Last year, European markets enjoyed their best performance since the dotcom boom of the late Nineties. They jumped nearly 23 per cent in 2005, rising for a third straight year on the back of surprisingly strong corporate earnings and a rash of mergers and acquisitions.

At home, the FTSE has surged 16.7 per cent. Gains were steeper still among medium-sized companies , with the FTSE 250 soaring 26.8 per cent.

While experts forecast that shares in London will rise march further north this year, few expect similar gains to last year's. They are forecasting a 6 per cent improvement on average, with Lehman Brothers and ABN Amro the most upbeat about prospects for European shares. Ian Scott, an equity strategist at Lehman, expects the FTSE to end this year at 6,200 points, up sharply from 5,618.8 at the close of business on Friday.

Conversely, Roger Cursley at Investec Securities predicted that London's benchmark index would give ground this year and finish December at just 5,500 points. Investors have already factored in much good news and earnings downgrades are on the way, he cautioned.