European stocks closed stronger yesterday, hitting new multi-year highs as bid activity boosted autos including Volkswagen, while US data showing mild inflation also supported markets.
The pan-European FTSEurofirst 300 index rose 0.2 per cent to end at 1,473.8, its strongest closing level since May 2001 but below the day's high of 1,474.9.
Shares in Volkswagen rose 1.5 per cent on market talk that sports car maker Porsche could mount a full takeover bid for Europe's biggest carmaker, in which it is already the biggest shareholder. Porsche rallied 4.7 per cent.
German truckmaker MAN gained 3.6 per cent on talk Swedish rival Scania was preparing a counterbid.
European bourses struck multi-year highs, with the FTSE 100 index up 0.4 per cent and Frankfurt's DAX adding 0.2 per cent.
"Valuations in equities haven't gone so far versus the bond market. There is still room for upside," said Klaus Kammerer, head of cash equities at Commerzbank.
"There are a lot of expectations that we will see a lot of corporate activity," he said, highlighting the consolidation in the financial industry including stock exchanges.
Yesterday, Paris's CAC 40, however, eased 0.1 per cent as bank shares fell, with BNP Paribas down two per cent after it suffered a growth slowdown in the third quarter.
US stocks were slightly higher towards the close of European markets as government inflation data boosted optimism that the Federal Reserve won't have to raise interest rates.
A fall in energy prices helped drive US consumer prices down by a more-than-expected 0.5 per cent last month, and even stripping away volatile food and energy costs, prices were up only 0.1 per cent.
Some strategists said that despite double-digit earnings growth and forecast-beating profits in Europe's third-quarter reporting season, doubts are emerging whether 2007 profits can meet expectations.
Juergen Lukasser, a global fund manger for Constantia Privatbank in Vienna, said matching the third-quarter earnings season would be difficult.
"Of course, it gets harder and harder to surprise on the upside, and this is a bit of a challenge for the next quarter," he said.
The DJ Stoxx auto sector index headed the day's gainers and rallied 1.3 per cent, driven by a 1.9 per cent rise in DaimlerChrysler on talk that Wolfgang Bernhard, the restructuring expert reported by newspapers to be quitting Volkswagen, could return to the US-German group.
National Grid, Britain's main energy network operator, jumped 6.8 per cent after saying it planned to demerge its broadcast and mobile phone mast business and return $1.9 billion to investors.
Among losers, Anglo-Dutch publishing group Reed Elsevier lost 4.6 per cent after saying its education unit would not reach its full-year growth target for the second year in a row.