European stocks end up, Abbey stars after approach

European share indexes closed slightly higher yesterday, buoyed by gains in banks after it was revealed that UK bank Abbey National has received a bid approach from Spain's Santander, but weakness in insurers and a fall on Wall Street weighed.

German software giant SAP lent support, gaining 2.3 per cent to €126.20 on news it will replace French drugmaker Aventis in the benchmark DJ Euro Stoxx 50 index.

The FTSE Eurotop 300 index of pan-European blue-chip shares closed 0.3 per cent firmer at 965.9 points on moderate turnover of around €2.2 billion.

The narrower DJ Euro Stoxx 50 index fell 0.3 per cent to 2,673.4 points, less than 150 points lower than where it started the year.

"The European equity market is stuck in its tightest trading range for 20 years," Smith Barney strategists said in a report.

"Positive bottom-up factors (valuations, earnings growth) are cancelling out top-down concerns (higher interest rates, slowing economies). We believe that the bottom-up will win out in the end, but it will be a gradual process."

Stocks have endured a poor patch, notching up five straight weekly losses as investors focus on mixed earnings guidance from companies and concerns that future profits may not justify current share prices.

"While the reporting season continues to come in better than expected, the glass is definitely half empty. Whether this lasts throughout August or is a month-end phenomenon remains to be seen," said Mark Tinker, head of strategy at independent brokers Execution.

In New York, disappointing results from Coca-Cola and a softer profit outlook from Microsoft weighed on sentiment.

The blue-chip Dow Jones industrial average was 0.6 per cent lower at 9,993.1 points while the Nasdaq Composite Index fell 1.5 per cent to 1,861.6 points.

Around Europe, London's FTSE 100 closed 0.5 per cent firmer, while Paris's CAC-40 ended down 0.2 per cent. In Zurich, the SMI rose 0.1 per cent and Frankfurt's DAX closed 0.1 per cent lower.

Abbey soared 18 per cent to 580 pence after it revealed it had been approached by Spain's largest bank, Santander Central Hispano (SCH) while other British banks also rallied on hopes of industry consolidation.

Heavyweight HBOS gained 1.4 per cent, while Alliance & Leicester and Bradford & Bingley - touted as potential takeover targets - gained 5.7 and 2.9 per cent, respectively.

SCH, which confirmed it was talks with Abbey but said it did not know if a bid would follow, fell 4.1 per cent to €8.00. Trade in the stock was suspended after Spain's market watchdog said it was waiting for more information on the talks.