Europe shares rise, Madrid falls as country mourns

European shares rose yesterday, helped in part by the prospect of a takeover battle for drugmaker Aventis, as many investors put the deadly blasts in Madrid behind them for now.

A steady Wall Street helped, but the tone was still jittery as the world waited to see whether the Basque ETA group or Muslim militants were behind the attacks in the Spanish capital that killed 198 people on Thursday.

Spain has said ETA is the prime suspect but the separatist group denied responsibility. If Osama bin Laden's al Qaeda is to blame, investors would fear more attacks elsewhere in the world, strategists said.

Madrid blue chips such as Telefonica and top banking groups fell one per cent or more as practically all the country came to a halt at noon to mourn.

Travel stocks slid for a second day on nagging concerns that holiday-makers will put off trips, with Spanish airline Iberia falling 2.7 per cent.

The FTSE Eurotop 300 index, which tracks the region's top 300 blue chips, recovered from an early slide to a mid-January low to end up 0.3 per cent at 989.26 points, snapping a three-day losing streak.

The benchmark closed 3.2 per cent for the week after hitting a 22-month high last week.

Dealers noted the retreat began before Thursday's blasts as a year-long run-up started to lose steam by January.

"The pullback would have happened, but the things happening in Spain exaggerated the mood. This is not a 9/11 kind of shock reaction," said Mark Tinker of Execution brokers.

"This is a pause. It's the four year anniversary of the peak in the Nasdaq, and one year anniversary from the start of the bull run, and so psychologically people take money off the table."

On March 12, 2003, European shares hit six-year lows, marking the bottom of a brutal three-year bear market. The Eurotop 300 is up 45 per cent since then.

"I see this is as a correction in a cyclical bull market and I am not particularly worried about it as value investors will come back in," he added. The DJ Euro Stoxx 50 index of top stocks in the euro zone ended a fraction of a point up at 2,834.03 points.

The VDAX index of volatility or "fear gauge" in German blue chips spiked for a second day to hit its highest level since late November.

The healthcare sector was buoyed by the prospect of an intensified merger battle as Swiss healthcare group Novartis confirmed it may come to the rescue of French drugmaker Aventis, which is fighting a hostile bid from Sanofi-Synthelabo.

A Franco-Swiss deal would create the world's second-largest pharmaceuticals group after Pfizer of the United States.

Shares in Novartis ended flat as many analysts doubted if the group would pull the trigger, but Aventis gained four per cent to hit new 2004 highs, while Sanofi was up 3.4 per cent.

Shares in France Telecom and conglomerate Vivendi Universal also rose after the Wall Street Journal reported the two groups were in talks about merging their cable assets in a move that could create France's biggest cable firm.

In financials, Dutch insurer Aegon reported a 16 per cent rise in 2003 net profit yesterday thanks to improving stock and bond markets and said it was looking to expand.