M&A, US mortgage rescue boost Europe shares

Mon Jul 14, 2008 7:28am EDT

* FTSEurofirst 300 gains 1.4 pct, boosted by banks

* U.S. plan for Freddie Mac and Fannie Mae offers support

* M&A boosts Alliance & Leicester, InBev, Continental, TNT

(Adds Kazakhmys)

By Patrizia Kokot

LONDON, July 14 (Reuters) - European shares jumped by midday on Monday, with banks rising on a U.S. plan to rescue mortgage finance groups Fannie Mae and Freddie Mac , while acquisition activity buoyed sectors from brewers to banks.

By 1032 GMT, the FTSEurofirst 300 index of top European shares was up 1.4 percent at 1,142.40 points, recovering from Friday's three-year low.

Banks took a cautious step towards recovery with the DJStoxx European banks index adding 2 percent.


Fannie Mae and Freddie Mac jumped 23 and 40 percent respectively in Frankfurt after a U.S. Treasury and Federal Reserve plan called for sweeping measures to lend money and buy equity if needed in the government-sponsored enterprises.
Banks also gained after Spain's Santander said it had reached a deal to buy British bank Alliance & Leicester . Alliance & Leicester shot up 50 percent, while Santander rose 0.5 percent.

Barclays added 5 percent, Lloyds TSB rallied 6.5 percent and UBS gained 2 percent.

"The fact that the U.S. institutions and congress are bailing out the U.S. institutions Freddie Mac and Fannie Mae draws a line under the financial system and shows that anything really important to the system will not be allowed to fail," said Stephen Pope, chief global market strategist at Cantor Fitzgerald Europe.

"The market has taken good heart from that and what we see now is that the money that was kept out of the market for a long time is back," Pope said, adding that it appeared that some of the money was being employed in M&A.

GOOD PRICE

"It is a positive deal for Santander because it allows them to gain market share in the UK for a very good price," analyst Sandra Neumann at WestLB said. "They were in discussion before but no price was settled on. Now the UK banks are of course very cheap."

InBev gained 1.2 percent after U.S. brewer Anheuser-Busch accepted a sweetened $52 billion takeover bid from the Belgian beermaker, with analysts voicing relief that a bidding war could be avoided.

In reaction, Cheuvreux upgraded Inbev to "outperform" and said the cost energies along were higher than anticipated at $1.5 billion.

Dutch mail group TNT rallied 26 percent on the back of a newspaper report that U.S. peer FedEx was in early talks to acquire the group.

TNT and FedEx declined to comment.

Merrill Lynch upgraded the stock, which also gained from market speculation of a counterbid from UPS .

German tyre and automotive systems maker Continental jumped 25 percent amid talk of bid interest from Schaeffler Group. The speculation lifted sector peers Michelin , up 3.7 percent, and Sweden's Autoliv , up 6 percent.

Continental said it had held talks with Schaeffler.

Other gainers included Philips , which rallied 7.3 percent after beating consensus forecasts with its second-quarter earnings.

And Spanish construction group Ferrovial spiked 8.6 percent after it announced a key step in its long-awaited refinancing plans for its British unit BAA.

London-listed mining group Kazakhmys soared more than 7 percent after a Financial Times website said the group was in merger talks with Russia's Metalloinvest. Kazakhmys said it would comment later on Monday.

Monday's casualty list featured oil and gas producers, which fell after crude eased more than $2 a barrel to $143. Shares in Total , Shell and BP lost between 0.7 and 1 percent.

Norsk Hydro dragged industrial metal groups lower after the Norwegian aluminium company issued a profit warning on its second quarter, pointing to increases in costs.

Shares in the group fell 13 percent.

Dutch maritime engineering group SBM Offshore shed 25 percent after it warned on full-year profit after Friday's market close.

Dutch broker Petercam downgraded the stock to "reduce" in and said: "This setback underlines that SBM is in a high-risk business with limited pricing power". (Editing by David Holmes)