European Stocks, U.S. Futures Climb; A&L, Freddie Mac Advance

By Sarah Thompson

July 14 (Bloomberg) -- European stocks and U.S. index futures rose after the U.S. government put its support behind Fannie Mae and Freddie Mac and takeovers increased. Asian shares declined.

Alliance & Leicester Plc surged 49 percent after Banco Santander SA agreed to buy the U.K. bank, while InBev NV and Anheuser-Busch Cos. climbed on plans for the Belgian company to pay $52 billion for the brewer of Budweiser. Continental AG, Europe's second-biggest tiremaker, jumped on talks with Schaeffler Group. Fannie Mae and Freddie Mac gained more than 11 percent in Germany.

Europe's Dow Jones Stoxx 600 Index advanced 1.5 percent to 274.31 at 11:19 a.m. in London, while futures on the Standard & Poor's 500 Index rose 1 percent. The Stoxx 600 last week closed at its cheapest relative to earnings in at least six years as record oil prices hurt automakers and airlines and concern deepened Fannie Mae and Freddie Mac were short of capital.

``Attractive valuations have become hard to resist,'' said Peter Jarvis, a London-based director of European equities at F&C Asset Management, which has about $200 billion. ``The corporate sector clearly believes assets are now at the wrong price. The fact that recent high-profile deals are being done with cash adds further weight to the argument.''

More than $11 trillion has been erased from global equities this year as rising oil prices, accelerating inflation and more than $400 billion in credit-related losses threatened to push the U.S. into recession and stifle profit growth.

Three-Year Low

The Stoxx 600 closed last week at a three-year low. The index is valued at 10.8 times profit.

The S&P 500, the benchmark for American equities, and the MSCI World Index slumped last week into a so-called bear market, or a decline of 20 percent from a recent peak. Among the 23 industrialized nations in the MSCI World, only Canada has averted such a sell-off.

``The market washed down good and bad assets rather indiscriminately,'' said Bernhard Maeder, a portfolio manager at Credit Suisse Asset Management in Zurich. ``The market is not expensive.''

The MSCI Asia Pacific Index decreased 1 percent.

Lehman Brothers Holdings Inc., once the biggest U.S. underwriter of mortgage bonds, gained in Germany. TNT NV rallied on a report it's in preliminary talks with FedEx Corp., while ITV Plc gained after Endemol NV's co-founder John de Mol said he wouldn't exclude making a bid for broadcaster.

Alliance & Leicester added 108.5 pence to 327.75 pence. Spain's biggest bank said it agreed to acquire the beleaguered U.K. mortgage lender for 1.26 billion pounds ($2.6 billion).

Santander fell 0.3 percent to 11.20 euros.

Mergers

Mergers have slumped worldwide from last year's record pace as banks curtail lending for deals following the collapse of the U.S. subprime-mortgage market. Takeovers have fallen to $1.63 trillion so far this year from $2.60 trillion a year earlier, data compiled by Bloomberg show. Mergers reached $4.1 trillion last year.

InBev gained 1.1 percent to 45 euros. The $70-a-share transaction ends a month of court fights and public denunciations as InBev tried to acquire the St. Louis-based beermaker in a hostile takeover. Leuven, Belgium-based InBev sweetened its initial offer by 7.7 percent and agreed to rename itself Anheuser-Busch InBev, the brewers said.

Anheuser-Busch gained $1.72 to $68.22 in Germany.

Continental advanced 24 percent to 66.87 euros. The company said it discussed a ``possible engagement'' by ball-bearing maker Schaeffler.

``One brief conversation'' took place between the two companies at the end of last week, Hanover, Germany-based Continental said today. ``As soon as Schaeffler Group has substantiated its plans, the management board of Continental AG will evaluate these and communicate its views in due course.''

Freddie, Fannie

Freddie Mac rose 90 cents to $8.65 in German trading. The company is scheduled to sell $3 billion in short-term notes today. Fannie Mae added $1.25 to $11.50.

Paulson asked Congress for authority to buy unlimited stakes in and lend to the companies that buy or finance almost half of the $12 trillion of U.S. mortgages. The Federal Reserve separately authorized the firms to borrow directly from the central bank.

``What they have done is probably quite helpful,'' said Roger Nightingale, global strategist at Pointon York Ltd. in London, which manages about $1.5 billion. ``It is a great deal better than it otherwise would have been.''

The steps would bring the U.S. closer to giving an explicit guarantee for the debt sold by the shareholder-owned, federally chartered companies. That reflects a need for the government to bail out an economy that's been rocked by the worst housing recession in 25 years, the credit crisis, and soaring energy costs.

Lehman, TNT

Lehman gained 50 cents, or 3.5 percent, to $14.93 in Germany.

TNT climbed 25 percent to 23.14 euros. Rising fuel costs and an economic decline revived merger discussion between FedEx and TNT, the FT said July 12, without citing anyone. Pieter Schaffels, a spokesman for TNT, and Jess Bunn of FedEx both declined to comment when contacted by telephone and e-mail.

A buyout ``makes sense,'' said Philip Scholte, an analyst at Rabo Securities in Amsterdam. ``You just link the two networks together.''

ITV rallied 8.9 percent to 41.7 pence. Endemol's co-founder John de Mol said he wouldn't exclude making a bid for U.K. commercial television broadcaster ITV, the Financial Times reported, citing an interview with de Mol. Separately, Morgan Stanley raised its recommendation on ITV to ``equal-weight'' from ``underweight.''

Norsk Hydro ASA, the world's fourth-largest aluminum producer, slumped by the most on record in Oslo trading as rising costs hurt second-quarter profit. The shares declined 13 percent to 65.5 euros.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.