Swiss syndicate Alinghi recovered from a last-gasp boat handling disaster to beat Emirates Team New Zealand by just one second and retain the America's Cup, sailing's most prestigious competition.

The thrilling victory saw Alinghi, the defending champions, seal the best-of-nine series 5-2 and become the first European team to defend sailing's most prestigious prize.

"We're just very happy," said Alinghi principal Ernesto Bertarelli. "I love this team, I love Valencia. I think we did everything. It was much harder than Auckland."

Alinghi just edged the Kiwis in a nail-biting finale that saw SUI 100's spinnaker pole fly off the mast and the sail into the water, leaving them at a standstill with the wind dropping.

NZL 92 steamed past the stricken Swiss but had to perform a penalty turn before the finishing line after earlier encroaching on Alinghi's run-up for the third mark.

The Kiwis performed the double-tack manouevre impeccably but by the time they had finished, Alinghi had regained enough speed to just edge their bow ahead for the heart-in-the-mouth win.

In ideal sailing conditions with wind speeds of 13-16 knots, the Kiwis controlled the lead-in to the start and soon took a 20-metre lead over the Swiss.

But Alinghi fought back and a slow tack by NZL 92 allowed the Swiss through the first mark 7sec ahead.

A bad Alinghi gybe down the second beat, with the kite struggling to set, handed Team New Zealand the advantage once more and the Kiwis stormed through the second mark 14sec up.

Alinghi held the favoured right-hand channel down the third leg and crucially had priority coming into the third mark.

Team New Zealand tacked on the port layline and immediately bore away into a dial-down, Alinghi responded and race organisers had no other option than raise a yellow flag for a penalty against the Kiwis.

The Swiss held their power to go through the third mark 12sec ahead and quickly built up their lead to four boatlengths.

NZL 92 tried to engage SUI 100 in a gybing duel and with the track quickly running out were handed a last chance when the Swiss encountered their problems with the pole.

Alinghi, however, made up the 30m it lost in that equipment disaster and nipped home ahead of the sharp-turning Kiwis, who at least avoided the ignomy of the 5-0 whitewash they suffered in the 2003 edition in Auckland.

"It was obviously pretty close but all credit to Alinghi. They sailed well, kept it close, kept on sailing the way they do and beat us fair and square," New Zealand general manager Grant Dalton said.

Alinghi, who brought the Cup to Europe for the first time since its inception in 1851, now have the right to organise the next event where, when and how they want.