European equity markets responded to strong gains on Wall Street on Wednesday, offsetting earlier profit taking.

The FTSE Eurofirst 300 gained 1 point, or 0.1 per cent, to 1,502.83.

Alcatel-Lucent, the French telecoms equipment maker, gained 4.2 per cent to 11.65 as it signed an agreement on a tie in with Thales that will lift its stake in the defence electronics group to nearly 21 per cent. Thales is issuing 25m new shares as payment for its acquisition of Alcatel's transport and securities unit. Shares in Thales gained 0.2 per cent to 38.31.

Steelmakers fell after Credit Suisse downgraded the sector from "market weight" to "underweight". Strategist Michael Shillaker said: "With US imports beginning to fall under weak demand and exports from Asia accelerating, we are concerned for European steel producers in 2007."

Paris-listed Mittal Steel fell 4 per cent to 31.55, while Germany's ThyssenKruppshed 2 per cent to 35.96. Salzgitter, also of Germany, fell 2.3 per cent to 99.31.

Mining and metals stocks were lower as base metal prices fell on commodity exchanges. London-listed miners were the worst hit, while Norsk Hydro, the Norwegian aluminium producer, fell 3.2 per cent to NKr188.50.

Merrill Lynch was "underweight" on European oil refiners because of "significant near term earnings risk". Analyst Hootan Yazhari said: "Since early October, European refining margins have fallen by over 65 per cent, none of which has been reflected in sector performance."

Merrill said the risks were most pronounced for Saras, the Italian refiner, which fell 0.8 per cent to 4.05, and Finland's Neste Oil, which dropped 1.8 per cent to 22.71.

Hellenic Petroleum, rated "sell", gained 5.3 per cent to 11.10 however, after a consortium in which it owns 20 per cent discovered natural gas in Libya's Murzuq basin.

Switzerland's equity market, which was closed on Tuesday when the rest of Europe enjoyed a session of strong gains, played catch up. The SMI index gained 1.5 per cent to 8,920.17.

Logistics group Kuehne & Nagel climbed 2.7 per cent to SFr91, and private bank Julius Baer rose 2.3 per cent to SFr137.30.

Richemont, the Swiss luxury goods and watchmaker, and its domestic rival Swatch, were both higher. Data published shortly before Christmas showed Swiss watch exports had risen by 13 per cent in November.

Richemont, which owns the Cartier brand, rose 0.9 per cent to SFr71.65, while Swatch, the world's biggest watchmaker, gained 1.2 per cent to SFr55.15.

The financial services sector was spurred by recent equity market performances. UBS, the Swiss investment bank, gained 2.5 per cent to SFr75.90, Greece's Alpha Bank added 2.6 per cent to 23.90 and domestic rival EFG Eurobank rose 2.9 per cent to 28.70.