Michelin & Cie, Europe's largest tyre maker, rallied after announcing a costcutting plan.

"These kinds of moves can quickly improve profitability, " said Karim Bertoni, who helps manage $19.6bn in assets at Banque Syz & Co in Geneva, Switzerland.

"Investors who had been shunning the industry are coming back, and that's lifting shares, " Bertoni said.

Banks and chemical makers limited index gains after BNP, Paribas, UBS and Solvay reported earnings that disappointed some investors. Royal Dutch Shell and BP, the region's biggest energy companies, slipped as oil prices fell for the first time in four weeks.

The Dow Jones Stoxx 600 Index added 0.2%. It peaked for the week at a six-year high on Wednesday after US Federal Reserve chairman Ben Bernanke said US inflation may be moderating, increasing bets among investors that the Fed may reduce borrowing costs.

Europe's Stoxx 50 also rose 0.2% last week, and the Euro Stoxx 50, a gauge for the 13 nations using the euro, was little changed.

The Stoxx 600 has advanced every week this year except one amid speculation that companies will seek mergers to counter slowing earnings growth.

Profit growth for companies in the Stoxx 600 will likely shrink to 8% in 2007 from 13% last year, according to analyst projections compiled by FactSet Research Systems in London.

The Stoxx 600 has risen 4.3% this year, following an 18% gain in 2006.

National benchmarks rose in 14 of the 18 western European markets last week. Germany's DAX added 0.7%, France's CAC 40 gained 0.4% and the UK's FTSE 100 rose 0.6%.

The Stoxx Automobiles & Parts Index climbed 5.8%. Shares of DaimlerChrysler, which makes up almost a third of the index by weighting, surged 9.2%.

GM, the world's largest automaker, is negotiating to buy the Chrysler unit, it was reported. The two automakers are already talking about designing new models together, such as large sport-utility vehicles.

DaimlerChrysler earlier last week said it's considering "all options" for the US subsidiary.

"We routinely talk to other automakers about areas of mutual interest, '' said GM spokeswoman Renee Rashid-Merem, who declined to comment further.

Chrysler spokesman Mike Aberlich refused to comment on the report.

Bloomberg