European shares close higher, boosted by M&A

European stocks closed up on Monday as Siemens and Nokia rose on a deal to combine their telecom equipment units but nagging growth fears and a dip onWall Street trimmed earlier gains.

The pan-European FTSEurofirst 300 index of top shares closed 0.65 per cent up at 1,268.6 points having earlier risen over 1 per cent to a day's high of 1,277.95. Daily trading volumes were significantly below average.

The benchmark is still in the red for the year and has fallen about 10 per cent from a near five-year high of 1,407.5 points hit on May 11 amid worries over economic growth and rising global interest rates.

Concerns remain ahead of an another expected rise in US borrowing costs next week but most strategists believe the sell-off has been overdone.

"We expect the market to be 6 -7 per cent higher at the end of the year than it was at the beginning. In the second part of the year, we expect defensive stocks to outperform the market," said Jean-Luc Buchalet, strategist at Factset JCF.

Germany's DAX jumped 1.2 per cent thanks in part to Siemens, France's CAC 40 rose 0.7 per cent and Britain's FTSE 100 added 0.5 per cent but New York's Dow Jones Industrial average traded 0.1 per cent down after reports North Korea plans to test a missile.

Several banks believe European valuations are still good.

"One of the strongest stylistic themes to emerge from the recent downturn in the market is the out-performance of large-cap stocks," said Inigo Fraser-Jenkins, strategist at Lehman Brothers.

"Some of the recent outperformance may have been a flight to liquidity during a period of turbulence. However, we think that large caps can continue to outperform. Large-cap stocks are as cheap as they have been at any point over the past 15 years."

Siemens surged 6.6 percent and Nokia added 3 per cent after agreeing a deal to create one of the biggest players in the telecoms network industry.