Shares in Frankfurt reversed early losses to close at a fresh record high. The Xetra DAX index bounced back from a session low of 7,496.42 to close with a gain of 80.16 at 7,709.27.

Epcos was the main feature outside the index, turning in a stunning performance to extend its rally to 35 per cent in two days as investors scrambled to top up on the stock ahead of Monday's inclusion in the Xetra DAX.

The electronics group, which replaces Mannesmann in the benchmark index, surged to €190 before closing up €31.50 at €170.50. Just four months ago the shares stood at €34.40.

Commerzbank was again at the centre of bid talk and this time the takeover bulls got the bit firmly between their teeth, helped by an upgrade to "speculative buy" at Credit Lyonnais.

The bank was said to be "in talks" with Dutch rival ABN Amro. Both groups refused to comment on the rumour, but Commerzbank gained €3.15 or 9.8 per cent at €35.35.

Retailer Metro added €1.30 at €42.50 following a positive trading statement.

Paris spent the day in negative territory, ending 1 per cent lower, with the CAC-40 index 64.08 down at 6,207.52. The biggest loser was luxury goods group LVMH, down €37.70 or 8.8 per cent to €392.20, which was seen as the effect of a rising euro threatening its export business.

TotalFina was down €6.10 to €141 in spite of Lehman Brothers raising its price target to €190. Carrefour was hurt by unfavourable rating opinion and the general downward trend in retail stocks, losing €8.70 to €142.

Amsterdam ended lower after another depressing session for the big financials. The AEX index came off 5.86 at 661.29.

ABN Amro, actively traded in 12 million shares, lost 19 cents at €20.78 in spite of widespread rumours that the group was set to forge an alliance with Germany's Commerzbank.

ING and Aegon, which both account for 10 per cent of the benchmark, fell heavily. ING lost €2.08 at €52.90 and Aegon came off €3.55 or 4.7 per cent at €71.65.