Solid earnings sent European shares soaring to a 31-month high on Wednesday but the dollar's week-long rally stalled as dealers questioned recent bullish comments on the U.S. twin deficit ahead of key trade data.
Investors also bought up long-dated eurozone government bonds, sending 30-year yields to record lows after a central banker indicated rates were firmly on hold.
U.S. stock index futures point to a steady opening on Wall Street but the Nasdaq Composite is set for a solid start, boosted by shares of Hewlett-Packard, which shot higher after news that its controversial chief executive was stepping down.
"This is positive for the tech sector and has a rub-off effect on Europe. The market's got momentum and that's what is keeping it going," said a dealer.
Hewlett-Packard's Carly Fiorina has faced criticism in recent weeks for inconsistent financial results and over the wisdom of buying Compaq Computer almost three years ago.
The FTSEurofirst 300 index of leading European shares was was 0.3 percent higher at 1,093.2 points, its 10th straight day of fresh 2-1/2 year highs.
Britain's FTSE 100 surpassed 5,000 points for the first time since June 2002 on Wednesday as a bid for supermarket chain Somerfield helped reinvigorate investor enthusiasm.
The stock market also got a boost from renewed interest in media shares.
Shares in French advertising group Havas rose 2.9 percent to its best levels in nearly 4 months as it beat expecations with a 2 percent rise in underlying revenues in 2004. Havas gains also boosted rivals, with British peer WPP also up 2.4 percent.
The battle for the London Stock Exchange heated up, with Euronext providing some details of its plans to bid for LSE in competition with Deutsche Boerse.
Euronext shares rose 2.4 percent after saying it expected fell 0.8 percent, LSE shares were 1.2 percent higher and Deutsche Boerse shed 0.6 percent.
DOLLAR UNDER PRESSURE
The dollar was on the back foot after hitting three-month highs versus the euro this week as commentators questioned Federal Reserve chief's Alan Greenspan's recent optimism about the U.S. twin deficits ahead of the trade data out on Thursday.
This week's dollar rally was powered in part by comments from the Fed chairman who said market forces may stabilise and cut the record current account deficit.
But noted Fed watcher John Berry said in a Bloomberg column that currency markets had been "perhaps misled" by Greenspan's comments and that the chairman listed many reasons why the deficit was not likely to shrink soon.
By midday, the dollar was down 0.1 percent at $1.2780 against the euro and off 0.3 percent at 105.42 yen.
Sterling gained more than half a cent against the dollar and jumped versus the euro after economic data showed a smaller than expected British trade gap and stronger manufacturing output.
Benchmark euro zone 10-year yields fell to their lowest since June 2003 and 30-year yields sank to all-time lows as investors continued to buy longer-dated paper for higher yields.
The moves followed comments from European Central Bank council member Klaus Liebscher that there is currently no pressure to change euro zone official interest rates, which are now well below their U.S. equivalents.
Benchmark 10-year yields were steady at at 3.45 percent after dipping as low as 3.433 percent.
Comparable U.S. Treasury yields edged up to 4.06 percent.
U.S. crude oil futures (CLc1: Quote, Profile, Research) held around $45 a barrel head of U.S. fuel supply data, which are expected to show rising inventories for crude and gasoline.
Gold hovered around $412 an ounce just above Tuesday's four-month low.
Earlier, the Nikkei average ended down 0.15 percent in thin trade with a number of markets closed in Asia to celebrate Chinese New Year.