European stock markets hit a new four-and-a-half-year high yesterday as global mining stocks rallied after miner Lonmin said it was in talks over a possible bid for the company.
Telecoms gained on speculation that Dutch group KPN could be a takeover target and rumours of consolidation in the UK banking sector swirled, while oil stocks rose along with higher oil prices.
The FTSEurofirst 300 finished the week 0.3 per cent higher at 1,342.8, after touching 1,345.5 points in afternoon trade, its highest level since August 2001.
"In the short term we have a lot of cash generation, a lot of M&A activity, valuations are still okay and we have a good macro-economic background," said Charles de Boissezon, strategist at Deutsche Bank.
"I can see the market continuing to grind a tad higher," he said.
M&A activity in the mining sector propelled indices higher after the South African miner Lonmin, which is also listed in London, said it is in talks over a possible bid for the company but declined to name its suitor.
Lonmin, the world's third-largest platinum miner, has seen its shares more than double over the past year on the back of soaring platinum prices. Yesterday, Lonmin's shares closed in London up 25 per cent, after touching a new high of 28.60 pounds.
Other mining stocks also surged on hopes of further consolidation in the sector. Anglo American was up six per cent, Xstrata added 3.4 per cent, BHP Billiton gained 2.4 per cent, and Rio Tinto closed two per cent higher.
The DJ Stoxx Basic Resources Index rose more than three per cent to be the highest sectoral gainer, as investors rethink mining asset valuations after the bid, against a background of booming metals prices.
"The market seems to think everyone's a winner here. It would be reasonable to assume that one of the other listed companies would be a potential bidder for Lonmin," a trader said.
"It tells you more than anything that people are protecting themselves. They don't know who else might get bid for so they're buying the sector," he added.
The telecom and banking sectors were also supported by mergers-and-acquisitions talk.
KPN rose 3.6 per cent after a report in newspaper Trouw said Dutch officials were speculating the group could be a takeover target for Spain's Telefonica and another large investor. Telefonica was up 0.5 per cent.
Shares in UK banks Northern Rock and Bradford & Bingley jumped as talk swirled that the two are discussing a merger to create an £8 billion mortgage specialist.
Northern Rock's shares were up 4.6 per cent while Bradford & Bingley's were up 2.8 per cent, after both hit record highs.
Capping a strong week of corporate earnings, Volkswagen rose 2.6 per cent after its Europcar car rental agency boosted 2005 sales and earnings sharply, bolstering its image ahead of a potential divestment.
Pretax profit at Europe's biggest car rental agency rose by a fifth to €101 million.
Societe Generale shares hit a fresh record after brokers raised their price targets following forecast-beating fourth-quarter results from the French bank on Thursday. The stock closed up 0.5 per cent after touching a high of €119.30.
"The earnings season as a whole, with a couple of exceptions, is not so bad and people are still very much focused on the earnings momentum," said Mr de Boissezon.
"That said, we've had a fairly strong run since the start of the year and the upside from here looks fairly limited, especially as we are going to go further into a Fed-tightening cycle, people will start focusing more and more on 2007, and then the going is likely to get much tougher," he said.
"At the end of the earnings season you might see some form of consolidation," Mr de Boissezon added.
Oil stocks added to gains on the day as oil prices climbed above $59 a barrel, extending the previous day's gains and stemming a two-week slide.
Royal Dutch Shell rose 0.5 per cent, Neste Oil gained 3.7 per cent, and Statoil was up two per cent.