European shares buoyed by wave of merger chatter

European shares rose yesterday as investors took heart from a fresh burst of new merger talk across the region.

The pan-European FTSEurofirst 300 index closed up 1.1 per cent at 1,516.6 points, breaking three straight days of losses.

In other European markets, London's FTSE 100 index was up 0.9 per cent, while Frankfurt's DAX rose 1.2 per cent and Paris' CAC 40 gained 1.4 per cent.

UK brewer Scottish & Newcastle boosted the broader European market as traders cited talk of a possible bid from Dutch rival Heineken, while shares in catering firm Compass Group rose sharply after the company delivered an upbeat trading statement.

Neither Scottish & Newcastle nor Heineken were immediately available for comment, but Scottish & Newcastle shares hit a high of 613 pence in a 12 per cent rise, the largest daily increase since October 1988.

"Most of it today is M&A activity," said Teun Draaisma, European equity strategist at Morgan Stanley, who said he believed that the market would resume a downward correction that started in late February with a sharp fall in Chinese stock markets.

"Investors should not count on a continuation of today's trend, we recommend that investors sell on strength," he said, citing what his bank viewed as pricey valuations.

Shares in Compass rose almost 5 per cent after the company said trading in the first five months had beat its expectations and the sale of its European vending business was progressing.