The dollar's dip prompted a early round of profit-taking and consolidation on European bourses, butWall Street's healthy early showing saw a recovery.

Frankfurt

German shares eased off highs although hopes of European rate cuts underpin the market.

The late-trading electronic index, the Xetra Dax, closed at 4762, up 71.5 points.

While most traders think a rate cut by the Bundesbank later this week is unlikely, they say that increasing calls for lower rates by German and European leaders are helping to shore up the dollar against the deutschmark.

As a stable dollar boosts export- sensitive stocks, investors are scrambling to cover their short positions to limit their losses. The result, say dealers, is a short squeeze, fuelling a further escalation of share prices.

The car sector leads the index's rally. Shares in Volkswagen surged on comments by VW Chairman Ferdinand Piech at the weekend that the company expects record results in 1998 and a further increase in 1999.

Piech said in a newspaper interview, "There's no reason to question the continuation of our success."

Volkswagen is trading up DM5, or 4%, at DM129.5 on the comments.

Traders said other car stocks hitched a ride in VW's slipstream. BMW improved DM35, or 3%, to DM1,200. Daimler, which was an outperformer last week, was up more modestly on a DM2.60, or 2%, gain to DM133.10.

Dresdner Bank is up after unveiling nine-month earnings Monday. It racked up 80 pfennigs, or 1.2%, to trade at DM104.90.

While Dresdner increased risk provisions to DM1.2bn from DM932m, investors had been braced for worse news, traders said.

Adidas Salomon shares were down 4.4% on disappointing 9-month sales figures.

Paris

French stocks climbed as hopes of further European monetary easing boosted sentiment.

the leading cac 40 index closed up 47 points at 3,569.

"The market opened higher then edged down a little bit" which shows the bourse isn't following any definite direction, a trader at Credit Lyonnais securities said.

"Investors are also waiting for a rate cut from the Bank of England this week and possibly one from Italy too now that it appears political disputes in Germany will avert interest rate cuts there."

Trading remained fairly light with only FFr2.7bn shares dealt by midday, when volume normally reaches around FFr4.0bn to FFr5.0bn by that time.

Investors are said to be keeping a close eye on economic indicators coming out of the US this afternoon.

Banking shares are performing well in light of renewed talk of a Paribas takeover. Traders said Credit Lyonnais is benefiting from some speculative buying interest after its chairman told French radio the state-owned bank is worth between FFr35bn to FFr40bn.

The bank is scheduled to be privatised early next year. The company's non-voting investment certificates are 2.9% higher.