European stocks snap losing streak as banks bounce

European stocks snapped a five-session losing streak yesterday as a rally in banks and resources gave the market a boost and a resurgence of merger and acquisition activity helped lift sentiment.

Among major movers, Rexam sank after agreeing to buy Owens-Illinois Inc.'s plastic packaging business, while renewed takeover talk boosted shares in Vallourec.

The FTSEurofirst 300 index of top European shares closed up one per cent at 1,582.5 points, clawing back after a 3.6 per cent drop last week, its worst week since a global sell-off in late February.

"Our view is the UK looks reasonable value, and parts of Europe look reasonably attractive," said Julian Chillingworth, chief investment officer of Rathbone Brothers.

"Germany's demonstrating some decent growth, other areas might be looking slightly overblown as we see other economies slow."

Despite last week's slide, the FTSEurofirst 300 is still up 6.5 per cent so far this year, supported by robust corporate results and buoyant mergers and acquisitions activity.

Around Europe, Germany's DAX gained 1.5 per cent, while London's FTSE 100 and France's CAC 40 both rose 1.0 per cent.

"The idea that the M&A activity will die because of interest rate hikes is absurd," said Jean-Francois Virolle, chief strategist at Global Equities in Paris.

"The rally over the past months was quite strong, and it's certainly healthy to see the market take a breather and stock valuations come back to lower levels."

Banks helped propel the market higher, with Barclays up 1.5 per cent after US hedge fund Atticus Capital urged the bank to drop its $87 billion bid for rival ABN AMRO.

Among other banks, Deutsche Bank rose 2.2 per cent, while BNP Paribas added two per cent and HSBC nudged up 0.5 per cent.

Allianz rose 3.4 per cent after sources familiar with the situation said the German insurer was looking at ways to defend its position, with a bank merger one option.

Resource stocks were also stronger, with Rio Tinto 2.6 per cent higher and BHP Billiton gaining 2.8 per cent as copper firmed.