European stocks hit highest close since November 2000

European shares rose yesterday led by mining and telecoms stocks and supported by strong US economic data, with a benchmark index closing at its highest level in more than six-and-a-half years. The pan-European FTSEurofirst 300 index ended up 0.9 per cent at 1,625.91 points - its highest close since November 16, 2000. It hit 1,627.66 points earlier yesterday, the highest intraday level since November 17, 2000.

The index rose 1.8 per cent over the week and has gained 3.5 per cent since the end of April.

"The rally is feeding the rally," said Giuseppe-Guido Amato, equities strategist at German brokerage Lang & Schwarz.

Key factors behind the latest upsurge were ongoing merger and acquisition (M&A) speculation, driven partly by private equity groups, and strong US economic data, Mr Amato said.

Yesterday's primary M&A beneficiaries were telecoms stocks, led by Deutsche Telekom, whose shares rose 4.1 per cent to their highest level since January 25. The volume at 78 million shares was more than twice the daily average in the past month.

Traders cited a rumour that US AT&T and Spain's Telefonica were looking to bid for the German operator's US subsidiary, T-Mobile. Deutsche Telekom said this week it had no plans to sell the unit.

Vodafone rose 3.1 per cent and France Telecom advanced 2.6 per cent. The DJ EuroStoxx telecom index firmed 2.1 per cent.

"Telecom... represents a deep valuation play," ABN AMRO said in a weekly European equities sector allocation note, which did not mention M&A activity in the industry.

"The sector offers a particularly strong valuation case. Its dividend and free cash flow yields are without equal in Europe, and the extent of the premium should offer a comfortable buffer against future operational deterioration," ABN AMRO said.

In other M&A-related action, software maker SAP rose 2.3 per cent, supported by market talk that US rival Oracle had acquired a stake. SAP declined to comment.

Copper rose to a two-week high, helping miners Anglo American and BHP Billiton rising more than two per cent each.

The session's most notable blue-chip loser was drugmaker GlaxoSmithKline, which fell 1.4 per cent amid recurring worries about its diabetes drug, Avandia.