Investment banks saw the first glimmers of a recovery in money-spinning mergers and acquisition business in Europe in the first quarter, but M&A volumes in the US were down sharply, dimming hopes for a revival there after a two-year slump.

Europe saw an 18 per cent rise in deal volumes on 2002 levels, according to preliminary data from analysts Dealogic, but US corporate takeover activity dropped by a stinging 23 per cent in the quarter.

Dealogic's figures revealed that first quarter European deal volumes rose 18 per cent to $159.2 billion from $134.4 billion in the first quarter of 2002.

In the US, the volume of M&A business fell to $68.1 billion in the first quarter from $88.9 billion in 2002. A run of multi-billion euro takeovers in March, including Procter & Gamble's $5.7 billion purchase of German hair care company Wella AG and a €14 billion unsolicited offer by Spain's Gas Natural for rival Iberdrola, helped Europe keep its lead over the US.

Europe had already outstripped the US in M&A activity in 2002. In the fourth quarter, Europe took 44 per cent of the global M&A pie, with $138 billion of deals versus $122 billion in the US.

On a global basis, first quarter announced deal value fell by three per cent to $285.6 billion of deals, down from $293.1 billion in 2002.

The global M&A drought has contributed to the worst investment banking industry downturn in three decades. Tens of thousands of jobs have gone since the start of 2001 as banks have slashed costs in the face of tumbling revnues.

But more buoyant conditions for bonds and commodities trading has helped offset the grim conditions in equities and mergers advisory for some banks.

Three of the big US investment banks - Goldman Sachs, Morgan Stanley and Lehman Brothers - which all reported first quarter results on Thursday, managed to report profit increases largely due to strong revenues from bond trading.

But their mergers and acquisitions and equity underwriting and IPO business remained weak, with no real sign of a revival.