Stocks in Europe, Asia Advance; U.S. Index Futures Increase

By Sarah Jones

July 7 (Bloomberg) -- Stocks rose in Europe and Asia and U.S. index futures advanced as investors speculated shares were attractive following a rout that left global equities at their cheapest relative to profit in at least 13 years.

J Sainsbury Plc gained after JPMorgan Chase & Co. upgraded the food retailer, saying the shares were cheap compared with earnings. China Merchants Bank Co. climbed after forecasting higher profits. Awilco Offshore ASA rallied 16 percent after China Oilfield Services Ltd. offered about $2.49 billion for the Norwegian oil and gas drilling contractor.

The MSCI World Index added 0.1 percent to 1,368.16 at 8:05 a.m. in London as nine of the 10 industry groups increased. Futures on the Standard & Poor's 500 Index rose 0.7 percent.

``Equity markets have overreacted on the downside,'' said Jeremy Batstone-Carr, a London-based equity strategist at Charles Stanley Group. ``The market has already anticipated quite a market fall in return on equity. Pretty much all'' of the bad news has been priced into shares, he said.

The MSCI World, which has fallen for five straight weeks, closed last week at its cheapest relative to earnings since at least 1995, based on data compiled by Bloomberg News. The index is valued at 14.3 times earnings.

Europe's Dow Jones Stoxx 600 Index advanced 0.8 percent, while the MSCI Asia Pacific Index increased 0.3 percent.

Sainsbury climbed 3.3 percent to 289 pence. JPMorgan raised its recommendation on the third-largest U.K. supermarket chain to ``overweight'' the ``neutral.'' The brokerage also upgraded Tesco, the biggest U.K. food retailer, to ``neutral'' from ``underweight.'' The stock rose 0.4 percent to 360.7 pence.

Attractive Sector

``For the first time in at least two years, we believe that the valuation of the European food retail sector is attractive,'' London-based analyst Jaime Vazquez wrote in a note to investors. ``It is cheap in absolute terms and also relative to other defensive consumer sectors.''

China Merchants, the country's most profitable bank, rose 6.1 percent to HK$24.25 in Hong Kong, poised for its largest gain since April 2. The company said first-half profit may have more than doubled as it extended more loans.

Awilco surged 11.3 kroner to 82.9. China Oilfield Services, a unit of the nation's third-biggest oil producer, agreed to buy Awilco for about 12.7 billion kroner ($2.49 billion).

China Oilfield is offering 85 kroner a share in cash in the deal to create the world's eighth-largest rig fleet, the Oslo- based company said.

Fresenius

Fresenius SE dropped 2.8 percent to 53 euros after the drugmaker agreed to buy U.S.-based APP Pharmaceuticals Inc. for $3.7 billion.

APP shareholders will receive $23 a share and tradable rights that may generate as much as $6 a share, payable in 2011, the company said.

Air France-KLM Group rose 0.9 percent to 14.28 euros. Europe's biggest airline said passenger traffic increased 2.6 percent in June, led by the Middle East and Africa and the Americas.

Bang & Olufsen A/S fell 8.8 percent to 171.5 kroner after the Danish stereo maker cut its profit forecast for the third time this year because of ``uncertain'' markets and weaker orders for its luxury consumer electronics.

Operating profit will come to about 195 million kroner, the company said, below its prior prediction of between 225 million and 275 million kroner.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.