European shares hovered around break-even levels on Tuesday as fears over a war with Iraq were offset by signs of a strong start in the US.

However, London's leading shares managed to end their 11-day losing streak as the FTSE 100 index closed up nine points at 3,490.

With the state of the union address tonight and with the market being oversold, we may see a bounce in the market Burton Schlichter, Lind-Waldock & Co

US markets also edged higher, boosted by better-than-feared consumer confidence figures and a raft of corporate earnings.

Analysts said worries that a war with Iraq would take its toll on the economy were still hitting sentiment.

"It is politics not economics that is moving the market at the moment," said Steve Barrow, strategist at Bear Stearns.

Wall Street rise

Nonetheless, the Dow Jones pushed back over the 8,000 mark, closing up 99 points at 8,088.

The Conference Board's consumer confidence index reported the lowest level for more than nine years on Tuesday, but analysts said the reading was still better than expected.

Corporate earnings from office equipment maker Xerox, consumer goods giant Procter & Gamble and drugmaker Merck also provided a welcome boost to investor buying.

The market is still in this terrible unknown name here

But market watchers said the overall mood was still very fragile.

"The market is still in this terrible unknown," said Sadakichi Robbins at Bank Julius Baer.

"The classic uncertainty principle has people on edge."

Dealers said all eyes were now on president George W Bush's state of the union address later in the day.

"With the state of the union address tonight and with the market being oversold, we may see a bounce in the market," said Burton Schlichter, a senior market analyst at Lind-Waldock & Co.

Looking for clues

Market experts said investors would be looking for clues as to the timing of any attack on Iraq, in the hope that the uncertainty dogging stock markets might be dispelled.

"If Bush does say the US is going to war with Iraq, this should lift equities, removing the uncertainty... with defence stocks most likely to benefit," said one dealer.

But some were not hopeful a clear picture would emerge.

"The Bush speech is the event risk of the day and probably won't give the market a lot of comfort," said Peter Dixon, an economist at Commerzbank.

However, the Conference Board's consumer confidence figures released on Tuesday were better than some economists had feared.

Confidence levels slipped to 79.0, the lowest level since November 1993 but still above the 78.5 forecast.