European shares take comfort on Fed from weak US data

European shares finished firmer yesterday, supported by signs of merger and acquisition activity in the region and by weak US economic data backing the case for central bank stimulus.

Industrial output in the world’s biggest economy unexpectedly failed to grow last month and June consumer sentiment fell short of expectations, allaying some of the concerns about a possible early easing of the US Federal Reserve’s equities-friendly stimulus programme.

The numbers helped the FTSEurofirst 300 regain some poise to finish the volatile session 0.2 per cent higher at 1,175.92 points. The modest rebound though was not enough to prevent the pan-European index from posting its fourth weekly loss in its longest down run since last spring.

“The problem is the markets are very thin so any kind of moves are overly exaggerated... (but) I remain cautiously bullish,” said Neil Marsh, strategist at Newedge.

“Everyone freaking out over the possibility that the Fed are going to start pulling back on their asset purchases... I don’t see them doing anything this year if economic data, like we’ve had today, is not very inspiring. Why would they want to jeopardise the economic growth that they do have?”

The recent weakness has encouraged some investors to dip their toes into the sectors which have sold off heavily this month, making them cheaper. Basic resources, which Citi raised to “overweight” on valuation grounds, financial services , real estate and autos all gained.

The top performers among individual stocks, though, were boosted by prospects of merger and acquisition activity.

Elan added 8.4 per cent after putting itself up for sale following expressions of interest, as the Irish drug firm seeks to fend off a hostile bid from Royalty Pharma.

“My view has always been that the Royalty offer that’s on the table doesn’t reflect adequate value for long-term shareholders, so any other possibility that can potentially extract more value is good news,” said Adrian Howd, analyst at Berenberg.

Nokia was the next biggest riser, up 4.7 per cent on a report that Siemens is in talks with private-equity firms for a sale of their equipment joint venture Nokia Siemens Networks.

Volumes were relatively light though, at just 83 per cent of the 90-day daily average, exacerbating the market’s volatility and signalling that investors were reluctant to put on big bets before next week’s Fed policy meeting.