European stocks rose to a four-and-a-half-year high yesterday as merger talk again lifted utilities such as Suez while US core inflation in line with analysts' forecasts eased worries about higher interest rates.
The benchmark FTSEurofirst index of the leading 300 European stocks ended unofficially 0.6 per cent up at 1,358.08 points, the highest level since August 2001.
On Wall Street, the Dow Jones industrial average was up 0.7 per cent by 1705 GMT after US consumer prices rose 0.7 per cent in January, but core inflation - costs outside of food and energy - was only up 0.2 per cent.
"The rise is in line with what the market had expected," said LBBW strategist Frank Schallenberger, adding that the figures would not fuel worries about further US interest rates.
Across Europe, Frankfurt's DAX and the French CAC-40 rose one per cent each, while Britain's FTSE 100 gained 0.2 per cent.
Utilities ranked as the leading sectoral gainer, adding 1.9 per cent, as merger and acquisition talk continued to grip the industry a day after Germany's E.ON made an offer for Spain's Endesa.
France's Suez led the rally with a 5.6 per cent gain, after Italy's biggest utility Enel said its plan to take a stake in Belgium's Electrabel does not exclude a possible bid for parent Suez.
Shares in E.ON's domestic rival RWE gained 4.1 per cent on speculation it might become a takeover target.
"Utilities are the hottest bet at the moment. Investors are mulling who will make the next acquisition or get bought itself," said Mr Schallenberger.
"We think European consolidation is likely to continue," JP Morgan analysts said in a note.
On the downside, telecoms fell further on market talk that Europe's largest phone carrier, Deutsche Telekom, might cut its dividend.
Shares in the German firm fell 1.3 per cent, despite a spokesman saying that the 2004 dividend of €0.62 per share would be the standard for the future.
"But growth prospects for the sector are not so bad because of attractive dividend yields and shrunken market capitalisations, which would make acquisitions doable," said Mr Schallenberger.
Dutch brewer Heineken jumped 7.7 per cent as investors cheered a better-than-expected 2005 profit. Among other blue-chip gainers, German industrial conglomerate Siemens put on 2.3 per cent after the German government said China had decided to extend the Transrapid magnetic train track by 160 kilometres.
The Transrapid train was developed by a consortium comprising industrial firm ThyssenKrupp and Siemens.
Shares in miner Anglo-American added 2.7 per cent after the company posted a 39 per cent earnings rise and said it was increasing its capital return to $1.5 billion.
Also on the earnings front, German forklifts and industrial gases group Linde rose 2.8 per cent after it beat analyst estimates with an 18 per cent rise in 2005 core profit and said it would increase its dividend.
Among miners, Rio Tinto tumbled 1.8 per cent as its shares went ex-dividend, pulling the basic resource index down 0.6 per cent.