European shares gain as E.ON deal boosts utilities

European stocks rallied sharply yesterday as utilities shares gained after Germany's E.ON and Italy's Enel struck a deal over Spain's Endesa and oil prices fell.

E.ON shares ended the day almost six per cent higher after the company admitted defeat in its 18-month long bid for Endesa and joined forces with Enel and Acciona to carve up Spain's biggest utility.

The pan-European FTSEurofirst 300 index closed up one per cent at 1,536.56 points, having earlier hit highs around 1,536.88, a level not seen since February 27 when a fall on the Chinese stock market hit investor sentiment around the globe.

But even with the bounce in the utilities sector, not all analysts were convinced the rally would last, especially with the trading week shortened by the Easter holiday.

"As we are now testing the previous highs of the market, it seems unlikely that the market will significantly advance prior to the Easter pause," said Tamoo Greetfeld, a strategist at HVB in Munich.

In other European markets, London's FTSE 100 was up 0.8 per cent, while Frankfurt's DAX was up 1.56 per cent up and Paris' CAC 40 was up 1.2 per cent.

Spain's main Ibex share index ended at a closing high of 14,953.2 points, supported by a broad base of stock gains but with builder Acciona as a standout. Acciona gained six per cent following the deal with E.ON over Endesa.

Acciona said it expected to file its takeover bid for Endesa in mid-April.

Oil prices extended the slide triggered by Iran saying late on Monday it wanted to resolve a row over 15 British sailors and marines in the Gulf through diplomacy and without a trial.

British Prime Minister Tony Blair then said earlier yesterday the door was open for diplomacy and the next 48 hours would be critical.

US crude oil futures were last down almost 2.5 per cent at $64.32 a barrel.

But the bulk of the stock rally was acquisition-driven, analysts said, with E.ON standing out.

"It's one of the big gainers today because it comes out very well for them... so it's a good result for E.ON," said Edmund Shing, European strategist at Kepler Equities.

Endesa fell over one per cent, Italy's Enel pared its gains to end the day around 0.1 per cent lower, although the DJStoxx European utilities index earlier hit a life-time high.

Also supporting the broader market was a two-per cent rally in the price of copper to its highest since early December that buoyed mining stocks, pushing Kazakhmys up 3.5 per cent, Rio Tinto up 3.7 per cent and Chilean miner Antofagasta up 1.6 per cent.