European shares closed over one per cent higher at a four-and-a-half year peak yesterday, with steel stocks soaring after Mittal Steel launched an unsolicited €18.6 billion offer for rival Arcelor.
Heavyweight oil stocks such as BP added to the bullish mood, rising strongly as crude prices leapt two per cent to $67.50 a barrel on supply security fears in Iran and Nigeria.
The pan-European FTSEurofirst 300 index of top shares closed up 1.2 per cent at 1,319.67 points, its highest close since August 2001.
Germany's DAX closed 1.8 per cent higher, France's CAC 40 added 1.6 per cent, and Britain's FTSE 100 climbed 1.1 per cent to its highest close since June 2001. Spain's IBEX rose 1.2 per cent to its highest since October 2000.
Arcelor, the world's second-biggest steelmaker, leapt 28 per cent to €28.54 following the $23 billion bid from its larger rival Mittal.
"People didn't look at this happening because Mittal is a quasi Asian-US stock, so European analysts have not been concentrating on it. But it is not totally unexpected," said Bertie Thomson at Aberdeen Asset Management.
Amsterdam-listed shares in Mittal, which is 88 per cent owned by founder Lakshmi Mittal and family, rose six per cent. Arcelor said its board would meet to discuss the bid, which it labelled "hostile".
German peer ThyssenKrupp jumped eight per cent after Mittal said that as part of its bid it had agreed sell all the shares in Dofasco to the German steelmaker, which had lost out to Arcelor in the bidding war for the Canadian company.
Britain's Corus and Germany's Salzgitter both made hefty gains as the Mittal deal sparked speculation of further sector consolidation and about its impact on other businesses such as mining.
"I think for customers, time will tell if Mittal buying Arcelor is a good deal. For the likes of Rio Tinto, Anglo American and BHP Billiton, I don't think it is great news because Mittal has its own mineral assets," added Mr Thomson.
Despite those worries, resources stocks were strong thanks to soaring commodity prices.
Also linked to the bid, France's Alstom gained 5.7 per cent as investors calculated it could replace Arcelor in France's benchmark CAC 40 if the Mittal deal goes ahead.