M&A talk helps European stocks climb to six-year high

European stocks closed higher yesterday as bid talks and an upbeat US session helped the FTSEurofirst 300 index to end at its highest level in over six years.

The index closed 1.3 per cent higher at 1,580.02. Britain's was up 0.7 per cent, France's CAC 40 rose 1.9 per cent and Germany's DAX was 1.4 per cent higher.

But it was Spain's Ibex 35 index which set a record closing level of 15,080.9 points, up 1.75 per cent.

Banks were the biggest gainers following a Dow Jones news agency report that French bank Societe Generale was in merger talks with Italy's largest bank, UniCredit.

Financial sources later told Reuters that Unicredit is considering making an offer for SocGen. The French bank subsequently denied it was in any merger talks with UniCredit.

SocGen shares closed up 7.7 per cent but UniCredit turned negative to trade one per cent lower.

UBS rose 3.3 per cent, BNP Paribas was up 3.9 per cent, and Commerzbank put on 3.6 per cent.

"Some of (the market rise) is a correction on the weakness that we saw earlier in this week, some of it is supported by relatively satisfactory results in US company results and European company results, but part of it and especially in the bank (sector) is clearly takeover speculation," said Luc Van Hecka, economist at KBC Securities.

Earlier this week strong economic growth figures out of China spurred fears that its rates could be raised, sending jitters across financial markets and hurting stocks.

But M&A talk and a generally upbeat corporate results both in the US and Europe meant the gloom was short-lived, dealers and analysts said. Alliance Boots was among the top gainers, up 7.1 per cent, as a $22 billion bid battle for Britain's biggest pharmacy chain broke out after private equity firms backed by millionaire businessmen vied to strike Europe's biggest leveraged buyout.

Meanwhile, engineering giant Siemens rose to near six-year highs on hopes the resignation of the company's chairman signalled the beginning of the end of a corruption saga and in anticipation of strong results next week, traders said.

Siemens closed up 4.2 per cent.

US stocks also lent Europe support, with the Dow Jones Industrial up 0.7 per cent at 12,908 on strong earnings from companies including Google Inc. and Caterpillar Inc..

"Earnings are a little better than expected in the United States after analysts had taken a knife to the numbers and overdone their downgrades," said Brewin Dolphin chief strategist Mike Lenhoff.

"What earnings are telling us is that it's a very strong global economy and Asian markets aren't terribly flustered by (the prospect of) a rate increase in China."