European stocks cautious before holiday, US payrolls

European shares ended Thursday's session up slightly but investors were unwilling to place big bets one day before key US jobs data and the Easter holidays.

The FTSEurofirst 300 index closed up 0.08 per cent at 1,540.13, with Britain's FTSE 100 index rising to its highest close in six weeks after the Bank of England kept interest rates at 5.25 per cent.

Ongoing M&A activity, such as talk of a possible merger between French technology group Safran and state-controlled defence firm Thales kept stocks underpinned.

Safran was the top gainer of the index, closing four per cent higher on the back of a newspaper article suggesting moves to a merger with Thales was resurfacing.

But investors were looking for answers on the state of the US economy from yesterday's non-farm payrolls after recent US data came in mixed.

Bernard McAlinden, investment strategist at NCB Stockbrokers, said the jobs number would be especially important after data in the previous session showed weakness in the services sector.

"The services part of the economy has been the mainstay of the US economy, it is the big dominant part of the economy. It has been holding up when manufacturing and housing has been weak," said Mr McAlinden.

"But yesterday we had a PMI for services indicating it's continuing to slow down there with the employment component also a good deal weaker. So that will have markets a little bit more worried about whether the US economy can have a soft landing."

M&A also heated up the UK market, as attention focused in on J. Sainsbury. The board of the British supermarket group is reviewing a takeover bid of about £9.5 billion tabled by a trio of private equity firms led by CVC Capital, the online edition of the Times newspaper said.

Sainsbury shares closed steady.

Around Europe, Germany's DAX closed up 0.4 per cent, while France's CAC 40 was virtually unchanged by the end of trade.

Air France KLM rose 3.6 per cent on the back of an upgrade from Deutsche Bank, while South Africa's London-listed insurer Old Mutual was up 2.4 per cent after a Citigroup upgrade.

European shares went into the Easter break on a recovery phase after a sharp sell off in equities in late February and early March.

The slide was prompted by US growth worries, political tensions and an unwinding of equity purchases using Japanese yen, as investor risk aversion rose.

British factory output fell for a second month running in February and its sharpest rate in nearly 18 months, data released on Thursday showed.

On the other hand, German industrial production unexpectedly rose by 0.9 per cent on the month in seasonally adjusted terms, boosted by gains in all sectors.

But the focus was on the US non-farm payroll.

"We're keeping our powder dry for tomorrow," said Peter Dixon, an economist at Commerzbank.

"In context of the economic data in the last six months, we're expecting a robust set of numbers" he said. "If significantly below 100, questions will be raised about the US economy."