European stocks bounce back

European stocks rose sharply yesterday to claw back a chunk of their recent steep losses, buoyed by a rally in mining stocks and gains on Wall Street as investors took advantage of cheaper valuations on offer.

Takeovers remained in the spotlight, with Associated British Ports jumping as a bidding battle for the group heated up, while Veolia Environnement and Vinci both fell as merger talks failed to get off the ground.

"We're struggling to find the way out of the doldrums, obviously, unless you've been under a stone for the past month, it's inflation. It's always a big worry," said Victor Polak, portfolio manager at Citigroup's wealth advisory unit.

"It's still very much a stock picker's market. Can you find value in these markets? Absolutely."

The pan-European FTSEurofirst index of 300 leading shares closed up 2.3 per cent at 1,268.4 points, its biggest one-day gain since May 23.

The index hit a seven-month low of 1,230.1 points on Wednesday and is down 10 per cent from a near five-year high hit on May 11.

On Wall Street, the Dow Jones industrial average gained 0.8 per cent as the outlook for profits attracted investors to shares hit badly by the recent sell-off.

"It's too early to see if the rally is going to be sustained. The key factor is going to be growth, particularly US growth," said Edmund Shing, strategist at Kepler Equities.

Miners bolstered the market gains as COMEX copper futures rallied more than five per cent, helping propel the DJ Stoxx basic resources index up 6.3 per cent.

The world's biggest miner, BHP Billiton, leapt 7.2 per cent, while Anglo American added 7.1 per cent and Rio Tinto gained 6.3 per cent.

Also among resource stocks, BP added 2.4 per cent, while Total rose 3.4 per cent and Royal Dutch Shell rose 2.1 per cent as crude topped $70 a barrel.

"I think today's actions are a combination of seeing some kind of hope that an end of the interest rate cycle is not far away, and after having seen fairly heavy falls, people are thinking that there's a little more value in the market," said Andrew Bell, a strategist at Rensburg Sheppards.

Exchange operators rallied, with Deutsche Boerse up seven per cent and Euronext 6.1 per cent higher as some investors bet the German company's battle for the European exchange operator may not yet be over.

Among financial stocks, Credit Suisse gained 3.6 per cent after news on Wednesday it would sell insurer Winterthur to French insurer AXA for 13.4 billion Swiss francs.

Elsewhere in the sector, Lloyds TSB rose 2.1 per cent after the Financial Times cited possible takeover interest from a consortium of Middle East investors. Lloyds declined comment.

In other takeover developments, shares in Associated British Ports rallied 5.4 as a group led by Goldman Sachs raised its bid for the company to 840p per share, after a rival group said it might make a counterbid.

French construction and concessions group Vinci fell 3.5 per cent after it refused to enter merger talks sought by Veolia. Shares in Veolia, the world's biggest listed water supplier, fell 1.7 per cent.

"Were Veolia to acquire 100 per cent of Vinci, assuming a 30 per cent premium to Vinci's current share price, we believe this would be earnings dilutive and could erode Veolia's medium term earnings growth," Goldman Sachs said in a note.

Also on the downside, Nordic group TeliaSonera sank 5.9 per cent after saying it was taking over Xfera Moviles to launch mobile services in Spain, worrying investors it was going into an already tough and mature market.

Elsewhere, EADS firmed 6.8 per cent, having closed 26 per cent lower on Wednesday on delays to the flagship Airbus A380 aircraft.

French engineering firm Alsom gained 8.3 per cent after its chief executive told a newspaper he would be comfortable if Bouygues wanted to raise its stake further, and traders speculated it could replace Arcelor in France's CAC-40 index.