European stocks hit six-year highs on M&A talk

European shares rose to their highest levels in six years yesterday, boosted by mergers and acquisitions speculation, while miners were supported by a strong outlook for base metal prices.

DaimlerChrysler gained 3.7 per cent to €56.2, up for the fifth session in a row amid continued talk the automaker might sell or spin off loss-making US arm Chrysler.

Carrefour shares advanced 3.3 per cent to a three-month high of €49.7 as traders cited persistent bid talk and speculation that the Halley family, Carrefour's main shareholder, was keen to sell its entire 13 per cent stake.

The pan-European FTSEurofirst 300 index rose 0.6 per cent to an intra-day peak of 1,552.6, a new six-year high, before trimming gains to be 0.4 per cent higher at 1,550.6.

The index is up 4.5 per cent so far this year after a 16 per cent jump in 2006, driven by a boom in mergers and forecast-beating earnings.

Trading volumes took a beating yesterday with US markets closed for a holiday and many Asian markets also closed. Some fund managers said markets could be however poised for a setback due to worries over corporate earnings.

"Assumptions for consensus earnings estimates are slightly too high," said Romain Boscher, a fund manager who managers about €3 billion at Groupama Asset Management.

"Our markets will partially be driven by M&A, quite low level of interest rates and there are still some significant inflows into the market, so liquidity is still there."

Many European stock markets hit their highest levels in six years, with London's FTSE 100 index up 0.5 per cent at 6,450.1, Paris's CAC-40 0.7 per cent higher at 5,751.2 and Frankfurt's DAX up 0.5 per cent to 6,990.7.

"We are cautious for the next couple of months even if we are quite confident for the end of the year. It's going too fast according to us," said Paris-based Boscher of Groupama AM.

Lehman Brothers strategists however said in a note that global quarterly earnings were coming in better than expected.

"Approximately 60 per cent of companies have reported fourth quarter results in the US and Europe," the investment bank said. "Based on results from the 498 companies out of a total of 800 stocks in the S&P 500 and the FTSEurofirst 300, the combined surprise ratio is at the same level as last week's at 3.7:1."

Extending the recent bid talk across European companies, French reinsurer Scor said it had bought a third of its rival Converium but the Swiss firm rejected a full takeover offer.