European shares hit their highest closing levels in a week yesterday, with ABN AMRO leading bank stocks higher as sources said Barclays was considering a bid for the Dutch bank.
ABN jumped 9.7 per cent to a record close, while the UK's Barclays fell 0.8 per cent. Barclays acknowledged speculation about its interest in ABN, which sources familiar with the matter said involved a merger blueprint to create a global bank worth about $160 billion, and said it would clarify its position before stock markets open today.
Several other banks have also expressed an interest in ABN, sources said on Sunday.
"This is a story about a mega merger, and it puts a lot of banks back in play. It'll force other players to follow on, and more consolidation should come about," said Mark Sartori, head of sales and trading at Fox, Pitt-Kelton.
The pan-European FTSEurofirst 300 index rallied 1.5 per cent to end at 1,476.0, its highest closing level since March 12 when it ended at 1,482.0. Financials were among the biggest gainers. US stock market indexes were about one per cent higher.
Yesterday's share rally came after a volatile first half of the month, which featured a sharp slide in equities prompted by a slump in Chinese shares on worries of a crackdown on speculation, a rising yen and concerns over global economic growth.
Global equities shrugged off a move by China's central bank to raise interest rates for the third time in less than a year on Saturday to put a lid on credit and investment and keep the world's fourth-largest economy from overheating.
European stocks have, however, been supported by a wave of mergers and acquisitions, and strategists remain upbeat on the outlook for markets.
"Though earnings momentum has slowed, margin pressure is not widespread, while companies have continued to increase their top lines in both the US and Europe," equity strategists at Lehman said in a note.
"As the year progresses, we do expect that earnings momentum could slow further. However, we do not think that this should detract from the positive outlook for stocks over the course of this year."
Around European exchanges, London's FTSE 100 index gained one per cent, while Paris's CAC 40 and Frankfurt's DAX both rose 1.4 per cent.
Financials were among the biggest gainers as bid speculation swept through the sector, with BBVA, Commerzbank, BNP Paribas, Fortis and Dexia up between two and 6.7 per cent.
Among losers, AstraZeneca shares lost 0.7 per cent after its lead experimental heart disease drug failed a late-stage clinical trial.
On the upside, Germany's TUI rose 9.6 per cent after it unveiled a tie-up of its tourism unit with Britain's First Choice to boost its position as Europe's biggest travel firm. First Choice shares jumped 8.5 per cent.
Franco-Spanish tobacco company Altadis rallied 6.4 per cent on speculation that Imperial Tobacco would raise its bid for the firm. Imperial fell 1.9 per cent.