M&A helps European shares to six-week high

European shares closed yesterday at their highest level since before they were hit by a global stock market sell-off, as M&A activity helped stocks to rally for a fifth day running.

Rodamco Europe was the biggest gainer of the index, with gains of 8.7 per cent, after agreeing to a merger with France's Unibail. Unibail shares closed 4.8 per cent lower.

Bid talk also sent shares in Puma and automaker DaimlerChrysler higher.

The pan-European FTSEurofirst 300 index ended 0.5 per cent higher at an unofficial close of 1,548.33, after earlier hitting a high of 1,550.80.

"The wave of M&A activity continues to drive markets. There is a lot of speculation, a lot of rumour some of which is likely to turn out to be true, some of which isn't," said Henk Potts, strategist at Barclays.

"The reality is there's a lot of private equity money around at the moment chasing ever bigger deals and therefore the market is pretty excited about that concept."

European shares fell nearly seven per cent in a week from February 27, spooked by worries over US growth and an unwinding of equity holdings bought using borrowed yen as investors grew wary of risk. The slide was triggered by a sell-off in Chinese stock market, which tumbled on February 27 on fears of a crackdown on speculation.

But abundant liquidity in a low interest rate environment has made for a wave of M&A speculation and actual deals which have helped stock markets to rebound.

Indeed, the MSCI All-Country World Index rose 0.5 per cent to touch 384.17 in European trade, surpassing the 383.12 reached on February 26 before the stock market sell-off.

And investors remained optimistic for now: "Looking ahead, we believe that the global economic backdrop remains healthy and conducive to continued good equity market performance," Bob Doll, Blackrock's global chief investment officer for equities, said in a report.

"The potential danger of a hard economic landing in the United States remains, although we believe such an event has a low probability of occurring."

Heavily weighted banking stocks added to the positive tone, with ABN AMRO up 2.1 per cent on speculation it could draw another bid to rival Barclays' overtures.

Sources said yesterday Royal Bank of Scotland and Santander are in exploratory talks over a possible joint offer for the Dutch bank.