Utilities, banks help push European stocks higher

European share indexes edged up yesterday, boosted by gains in utility stocks as merger talk continued to swirl, with stronger banks also helping to outweigh a resource-stock slide.

Advertising group WPP and bank Lloyds TSB were among the top gainers after posting healthy profits, while brewer InBev was swiftly punished after a cost-cutting target disappointed.

The FTSEurofirst 300 index of leading European shares rose 0.3 per cent to 1,359.73, up 1.3 per cent for the week and just shy of Thursday's four-and-a-half-year intraday high.

"At the moment the market's fair value. It could get a little expensive, though, if we continue to see bids," said Emmanuel Soupre, fund manager at Neuflize Gestion in Paris.

"The market is looking for robust growth." Franco-Belgian utility Suez jumped 5.9 per cent with Gaz de France up 4.2 per cent on new speculation they may consider an alliance to fend off any approach for Suez from Italy's Enel. Both GDF and Suez declined to comment.

"It makes sense from a strategic point of view. It's the perfect poison pill as the French government is in GDF. From a financial point of view it is very good for both companies," said a trader.

Also among utilities, National Grid added 2.7 per cent after saying it was in talks with US natural gas distributor KeySpan Corp., which sources familiar with the situation said could lead to a $7 billion takeover by the UK utility.

The DJ Stoxx European utility sector index was up 1.2 per cent, reflecting the merger talk gripping the sector.

But the DJ Stoxx basic resources sector index dropped 0.6 per cent, pulled lower by Lonmin's eight per cent slide after the company said it was no longer in talks on a possible takeover.

Lower base metals prices also weighed, with copper miner Antofagasta down 1.8 per cent, BHP Billiton 0.9 per cent lower and Rio Tinto down 1.5 per cent.

Among gainers, Lloyds shares rose five per cent after the bank, Britain's largest unsecured lender, posted a four per cent rise in underlying profits last year.

Elsewhere, HSBC added 1.6 per cent while France's Natexis jumped 6.9 per cent after analysts upgraded their recommendation on the stock a day after its results.

Retailers gained, with Tesco up 3.1 per cent after investment bank Citigroup said, after an analyst visit, that the supermarket chain is maintaining its lead over its rivals.

WPP, the world's second-largest advertising company, gained 7.9 per cent after its full-year profit climbed well ahead of expectations on strong growth in China, India and the United States.

But shares in InBev fell more than two per cent even though the world's largest brewer reported 2005 earnings just above the average of analysts' forecasts given in a Reuters poll but failed to give precise cost-cutting targets.