European Shares Hit Highest Point in Almost 6 years

Posted 02 January 2007 @ 02:34 pm EET     Print     Reprint     E-Mail     Comments

PARIS (AP) - European shares kicked off the New Year on an upbeat note on Tuesday as merger activity in the telecoms and French utility sectors helped the region's top stock indices march to new multi-year highs.

Vodafone climbed 1.8 percent on talk the cell phone giant was less likely to acquire Hutchison Essar after the Financial Times said India's Essar group had tied up financing for a potential bid for the two-thirds of the business it does not own.

Strong miners such as Anglo American also helped, as did BNP Paribas, up 2.5 percent. The French bank was France's top M&A adviser in 2006 for the second year running, ahead of U.S. rivals Goldman Sachs and Merrill Lynch, a report by financial newspaper L'Agefi said.

The FTSEurofirst 300 index of top European shares was up 0.96 points at 1,497.64 points, its highest intraday level since February 2001. The FTSEurofirst 300 index ended 2006 on gains of 16 percent, bringing to 113 percent its overall rally since the market's multi-year trough of March 2003.

European equity markets were widely expected to climb for a fifth consecutive year in 2007, but strategists warned that slowing earnings growth would cap rises in equity returns.

"We think European equity markets will rise again over the course of 2007. Our forecast suggests a total return of 14 percent," said Ian Scott, strategist at Lehman Brothers. "However, we think that the internal dynamics of the market are likely to differ substantially from those that have characterised the rally since 2003."

"While we foresee headwinds of declining earnings growth, we believe that favourable valuations of equities relative to other asset classes, and supportive fund flows, will provide scope for further outperformance."

Around Europe, London's FTSE 100 index and Paris's CAC 40 both gained 1.2 percent, while Frankfurt's DAX rose 1 percent.

Trading volumes were thin as many market players were still on holiday and U.S. stock markets were closed for a national day of mourning for former President Gerald Ford who died last week.

Investors now looked ahead to a batch of U.S. reports on non-farm payrolls and manufacturing activity, and a Federal Reserve's interest rate decision, and fourth-quarter corporate results due later this month.

In the meantime, merger and takeover activity gave no signs of abating. In France, billionaire Francois Pinault declined to rule out making an offer for Suez, adding to uncertainty surrounding the utility's plan to merge with state-controlled Gaz de France. Suez shares gained 1.4 percent.

Shares in Veolia Environnement, which had soared 9 percent on Friday, were down 4 percent. French press reports have said that Pinault would sell Suez's environmental business to Veolia.

In the steel sector, Anglo-Dutch steel group Corus added 1 percent after Indian newspapers reported Tata Steel would raise its bid for the company.