Autos gain, M&A returns to lift European shares

European shares rose yesterday, notching up their third day of gains in four, helped by a Goldman Sachs upgrade of the auto sector and a return of merger and acquisition talk.

On a thin day for corporate earnings and macroeconomic data, the FTSEurofirst 300 index of top European shares ended 0.47 per cent higher at 1,546.28 points.

The DJStoxx European auto index was the top sector gainer, up 2.4 per cent, after Goldman upgraded its view. BMW rose 3.4 per cent and DaimlerChrysler gained 1.8 per cent.

Renault rose 3.3 per cent, with the French group also benefiting from positive comments from Lehman Brothers.

A surprisingly aggressive Federal Reserve rate cut on Tuesday helped the index gain 2.6 per cent this week, its best week since late August.

The FTSEurofirst has now gained eight per cent from its year low of 1,426.51 hit in mid-August, helped by cuts in the Fed's discount and main funds rate, evidence that other central banks are willing to step in to address a liquidity crunch, and broadly strong company results.

The European benchmark tumbled nearly 13 per cent in one month from mid-July on fears that a crisis that began with defaults in risky US mortgages would spiral across the wider economy.

Analysts said that the next few weeks were likely to be marked by choppy trade as investors gauged how much of the damage had been contained.

"It's still too early to call the end of the corrective phase, which may have another leg to go," said Philippe Gijsels, senior equities strategist at Fortis Bank in Brussels.

"September and October should be difficult, but by year-end and early 2008, things should be okay," he said, adding that the Fed's rate cut would take six to 12 months to have an impact on the US economy.

Across Europe, Britain's FTSE 100 gained 0.4 per cent, Germany's DAX rose 0.77 per cent and France's CAC 40 rose 0.2 per cent.

Mergers and acquisition talk, a major driver for shares before the liquidity crunch took over the headlines, was in evidence again.

German engineering group Siemens gained 3.9 per cent, helped by market talk that it may spin off its Osram lighting unit, and builder Hochtief climbed 6.5 percent on talk that investor Oleg Deripaska was raising his stake.

Siemens declined to comment and Hochtief said it was not aware of any investors increasing their stakes.

The London Stock Exchange (LSE) gained 6.7 per cent, with traders saying that JPMorgan and UBS were placing shares in the group, which has become the subject of stake building attention from both Dubai and Qatar.