Cars, chip makers help lift European shares

European shares rose yesterday, boosted by automotive stocks after a source said that MAN was considering a bid for Scania, while chip and tech shares also helped markets rebound.

The car sector moved into the spotlight in the last two hours of trading, with Swedish truck maker Scania jumping nine per cent before its stock was suspended after a source said German rival MAN would seriously consider a bid.

MAN rose 2.5 per cent as analysts said a tie-up would make sense, while Volkswagen, which has a 34 per cent voting stake in Scania, rose 2.8 per cent.

The pan-European FTSEurofirst 300 index rose 1.2 per cent to 1,366.25, after briefly dropping to 1,345.5 on news of a car bomb attack on the US embassy in Damascus. The index fell 0.5 per cent on Monday.

Across Europe, London's FTSE 100 ended up 0.8 per cent, while Germany's DAX rose 1.3 per cent and Paris's CAC-40 gained 1.3 per cent.

Wall Street also helped, with the Dow Jones industrial average gaining 0.5 per cent by 1606 GMT, on optimism about the financial sector after Goldman Sachs reported better-than-expected results.

Among top gainers were chipmakers Infineon and STMicroelectronics, advancing more than four per cent as sector prospects brightened and amid bid speculation surrounding US-listed Freescale Semiconductor.

"The sector has been hit hard but now (standards memory chip) DRAM prices are rising and there are restructuring stories such as Infineon into which we have bought," said Markus Steinbeis, a senior fund manager at Activest.

Mobile phone giant Nokia also provided a lift by saying it had signed network and handset deals with Chinese customers which would be worth more than €2 billion this year.

Nokia rose 2.6 per cent, while Ericsson was up 1.7 per cent and software group SAP gained 3.5 per cent.

European equities have ticked towards near-five-year highs hit in May, but fund managers said markets were likely to stay rangebound as investors assessed US economic growth.

"We have clear evidence that there is some sort of an economic slowdown in the US economy. And until the markets are reassured about how strong it is, I am not sure markets will necessarily be able to break out of the year's highs set in May," said Jeff Currington, European equities portfolio manager at Credit Suisse.

European aerospace firm EADS gained 5.4 per cent after a senior adviser to Russian President Vladimir Putin said Russia may be interested in buying at least a blocking minority stake following a five-per cent stake buy by a Russian state bank.

Gaz de France jumped 3.3 per cent as it raised its 2006 profit growth forecasts, with energy prices boosting exploration and production.

British broadcaster ITV tumbled as much as four per cent yesterday after broker Mr Cazenove said the outlook for advertising remained difficult and the chance of a new private equity offer was unlikely.

German graphite electrode maker SGL Carbon fell 4.3 per cent on talk that it will bid for UK firm Morgan Crucible, whose shares rose 6.8 per cent.

WestLB analyst Michael Tappeiner said this could lead to worries about a capital increase, while SGL declined to comment.

Also on the bid talk front, UK-based equipment hire firm Ashtead Group rallied almost six per cent as traders cited vague bid talk, but said no names were available.