European equities climbed to their highest in nearly 28 months on Thursday, though pared gains late in the session as investors scaled back their trading positions ahead of Friday's US non-farm payrolls data.
The FTSEurofirst 300 index of top European shares finished up 0.4 percent at 1,147.23 points after touching 1,154.10, the highest since mid-September 2008. It rose more than 7 percent last year after 26 percent gains in 2009.
"Investors are expecting to see very good numbers from tomorrow's non-farm payrolls report. And if we do get unbelievable numbers, then it could pose some threat to QE2," said Joshua Raymond, strategist at City Index, referring to the US Federal Reserve's stimulus measures.
"We are just seeing a bit of profit-taking and removing some risks ahead of tomorrow."
Forecast-beating US private-sector jobs data on Wednesday raised expectations the payrolls figures will be good. The report is expected to show non-farm payrolls jumped 175,000 after November's surprisingly small 39,000 gain.
Insurers featured among the top gainers, with the sector index up 1.8 percent, AXA gaining 2 percent and Allianz SE rising 1.6 percent on expectations of improving economic conditions.
Analysts remained positive on the market's medium- to longer-term outlook. According to Thomson Reuters Datastream, the STOXX Europe 600 carries a forward price-to-earnings (P/E) ratio of 10.8, below a 10-year average of 13.7. This compares with a forward P/E ratio of 13.1 for Wall Street's S&P 500.
However, Thursday's gains in European equities were clouded by weaker Spanish and Portuguese shares, hurt by nagging worries over their debt levels. Spain's IBEX fell 1 percent, while Portugal's PSI 20 slipped 1.2 percent.
A majority of economists polled by Reuters said Portugal will need a European Union-led bailout at some point similar to those handed out to Ireland and Greece in 2010.
Across Europe, Britain's FTSE 100 fell 0.4 percent, Germany's DAX gained 0.6 percent and France's CAC 40 was flat. The Thomson Reuters Peripheral Eurozone Countries Index was down 1.4 percent.