European shares gain on M&A talk, firm oil sector

European stocks rose yesterday as merger and acquisition speculation boosted a number of companies, including Nokia, while strong earnings propelled shares of Standard Chartered.

US light crude prices hit a record peak near $64 after a string of refinery outages, lifting heavyweight oil stocks on expectations that soaring prices would continue feeding bumper profits. BP closed up 1.7 per cent, and Italy's ENI rose 1.5 per cent.

The FTSEurofirst 300 index of pan-European blue chips closed 0.6 per cent higher at 1,181.3 points, just eight points short of last week's three-year peak.

"There are broadening signs that the world economy is re-accelerating and inflation is more or less under control, so the outlook for stocks has been improving," said Trevor Greetham, an asset allocation strategist at Merrill Lynch, while cautioning that markets look increasingly overbought.

"We are happy to be long global equities relative to bonds on fundamental grounds, but we would feel uncomfortable about aggressive buying into such a frothy market."

The narrower DJ Euro Stoxx 50 index rose 0.4 per cent to 3,292.4 points, in thin volumes.

Europe's corporate results season slowed, but most company earnings continued to at least meet market expectations.

Standard Chartered topped forecasts with a 20 per cent rise in pre-tax first-half profits. Its shares surged to a record high of 1,225 pence and closed up 7.6 per cent at 1,211p.

European stocks outperformed their US peers, with Wall Street pressured by concerns that the Federal Reserve might be more hawkish on inflation and interest rates today, when it is expected to raise rates for the tenth meeting in a row.

The blue-chip Dow Jones industrial average was 0.1 per cent firmer at 10,568.5 points, while the Nasdaq Composite Index fell 0.2 per cent to 2,174.4 points by 1618 GMT.

Around Europe, London's FTSE 100 closed 0.6 per cent higher, Frankfurt's DAX added 0.2 per cent, while Paris's CAC-40 and Zurich's SMI both rose 0.4 per cent.

Helsinki's HSE General rose 0.7 per cent, boosted by Nokia, which rallied 1.1 per cent after The Business newspaper reported that Cisco Systems was considering buying the world's largest maker of mobile phones.

A Nokia spokeswoman said the report seemed to be "pure fabrication".

Takeover talk also spurred telecoms equipment maker Marconi, which jumped 15 per cent after confirming it was in the early stage of talks with third parties about potential business combinations, following reports it could be a bid target.

The Sunday Times said Marconi's Chinese partner, Huawei Technologies, might bid more than £600 million for the British company.

In Italy, publisher RCS Mediagroup rose three per cent after shareholder Stefano Ricucci said he planned to continue buying stock, rekindling takeover speculation.

And A.P. Moeller-Maersk rose three per cent after the Danish shipping giant said it had agreed to buy the majority of Kerr-McGee's British oil and gas activities.

Mergers and acquisition activity blossomed in the first six months of the year as cash-rich companies finally started looking for growth opportunities after years of cost-cutting and repaying debt.

"What all these deals tell us is that the tide may be turning in terms of management willingness to take some risks on behalf of shareholders," said Richard Lacaille, State Street Global Advisors' chief investment officer in Europe.