By Steve Goldstein

European stocks advanced in midday trading on Tuesday, led by sectors sensitive to the broader economy such as technology and automakers, after Federal Reserve officials indicated that the U.S. economy hasn't yet suffered a severe slowdown.

The pan-European Dow Jones Stoxx 600rose 1.2% at 366.72, led by cyclical companies including business software maker Business Objects (BOBJ) , stock exchange operator Deutsche Boerseand automaker Renault.

In speeches on Monday, four Fed officials said the U.S. faces an increased risk of slowdown, though none said the slowdown has materialized yet, and a few played down the surprisingly weak August unemployment report, which showed a decline in job growth for the first time since 2003. That helped the Dow Jones Industrial Average finish 14 points higher, when it was 53 points lower at the time of the European close on Monday.

Federal Reserve Chairman Ben Bernanke will be speaking in Berlin on Tuesday, at 11 a.m. Eastern, in what could be his last opportunity to give clues as to what the U.S. central bank will do next week. The topic is global imbalances, so there's a possibility that Bernanke won't address matters of monetary policy at all.

"Equity markets so far seem to have taken the view that central banks will resolve the crisis and that the impact on growth will remain limited. Precedence from past financial crises suggests that this is indeed a feasible outcome," said Bernd Meyer, an analyst at Deutsche Bank.

But Meyer advised that until the dust settles, investors should focus on companies with low financial gearing, those that are exposed to emerging-markets growth, those focused on growth over value, and large caps over small-caps.

By region, the U.K. FTSE 100rose 1.3% at 6,215.10, the German DAX 30rose 1% at 7,450.83 and the French CAC 40increased 1.4% at 5,459.64.

U.S. stock-market futures also were higher.

Crude-oil futures were up 8 cents at $77.55 a barrel as traders awaited a decision from the Organization of Petroleum Exporting Countries on production quotas.

Merck on the move

Of movers, shares of Merck KGaArose 5.7% as the drugmaker said a Phase III study of Erbitux with chemotherapy improved survival in patients with advanced non-small-cell lung cancer. Merck has the European rights to the drug, which in the U.S. is sold by ImClone Systems (IMCL) .

"We are confident Erbitux will become an oncology blockbuster within a few years in the Merck territories alone and has the potential to become one of the top five to eight cancer drugs globally," said Alexandra Hauber, an analyst at Bear Stearns.

A blockbuster drug is usually defined as one with over $1 billion in annual sales.

Shares of U.K. clothing chain Nextadvanced 2.7% even as the firm warned its directories unit could be in for a tough time. It reported a stronger-than- forecast 11% rise in pretax profit during the first half as it sold more mid- and top-end clothing.

Alstomshares rose 5% as the Les Echos newspaper reported that the French presidency has commissioned a group to study what to do with the country's nuclear operations, including a possible merger between Alstom and Areva.

Areva shares added 4.1% on light volume.

KPN (KPN) shares advanced 3.9% as it was upgraded by Merrill Lynch to buy from neutral and added to the broker's Europe 1 list, with the broker citing consolidation in the Dutch mobile market. Separately, the Dutch telecom formally unveiled its offer for IT services firm Getronics and said it has built a 29.9% position.

DSG Internationalwas one of the few large-cap decliners, losing 0.5% after Morgan Stanley cut the electronics retailer's rating to underweight from equal- weight. The broker said the operator of Currys and PC World stores needs " significant" restructuring that will eat into profits and likely reduce dividends.

Zurich Financialadded 1.3% as the insurer cut its estimate of U.K. flood claims to $260 million before tax, from $400 million.