Oils, autos help Europe stocks to 6-week highs

Mon Aug 11, 2008 4:52am EDT

* FTSEurofirst up 0.5 percent, led by oils, banks

* Automakers gain on euro weakness

* UBS rises on debt buyback

By Sitaraman Shankar

LONDON, Aug 11 (Reuters) - European stocks hit their highest level in more than 6 weeks early on Monday, led by oil shares as fighting between Russia and Georgia boosted oil prices, while automakers gained from a weak euro.

At 0827 GMT, the pan-European FTSEurofirst 300 index was up 0.5 percent at 1,204.70 points, after having hit a high of 1,210.79, its strongest level since June 26.

Auto stocks gained as the euro traded as low as $1.4908 after suffering its biggest one-day drop since January 2001 on Friday. The euro later recovered to above $1.50.

BMW rose 3.4 percent, Daimler gained 2.7 percent, while Renault and Peugeot advanced about 2 percent.

Though oil gained $1.60 a barrel, it was still below $117, and a long way below record highs above $147 hit last month.

"The key elements of this equities rebound are the drop in both the euro and oil prices. Even the ECB seems to finally recognise that the recession in Europe is just around the corner," said Marc Touati, economist at Global Equities in Paris.

"The U.S. economy is already getting better, while Europe's is plunging ... with hopes of rate cuts, the euro is falling, boosting the U.S. dollar, which prompts a retreat in oil prices."

Dutch mail and logistics group TNT was a standout gainer, jumping 3.5 percent after a source familiar with the talks said U.S. delivery company United Parcel Service was in talks to buy TNT.

Shares in Swiss bank UBS rose 4.3 percent after it agreed on Friday to buy back $18.6 billion in auction-rate securities (ARS) whose value collapsed during a global financial crisis, and to pay $150 million to settle charges it misled investors.

"UBS ... says that costs for the ARS buyback should not exceed $900 million. On Friday, market participants expected up to $2 billion," one Zurich-based trader said.

Across Europe, Britain's FTSE 100 .FTSE was up 0.7 percent, Germany's DAX .GDAXI up 0.4 percent and France's CAC .FCHI up 0.5 percent.

OIL STRONG ENOUGH, WEAK ENOUGH

While a 21 percent slide in crude since its July 11 high has eased inflation worries and is generally positive for equities, oil's uptick on Monday lifted heavyweight energy shares and contributed to the FTSEurofirst's rise.

BP , Royal Dutch Shell and Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) gained 1.3 to 1.8 percent.

Miners were in focus after Kazakhmys raised its stake in rival Eurasian Natural Resources (ENRC) to above 25 percent and Xstrata looked to raise more than 5 billion pounds to forge ahead with a hostile bid for Lonmin .

Kazakhmys was up 2.3 percent, Xstrata up 1.1 percent and Lonmin flat but ENRC tanked 4.2 percent after Kazakhmys said it had no immediate plans for a bid.

"ENRC has also been very highly correlated to the Russian market recently," said an analyst. Russian stocks hit their lowest level for two years on Monday, unsettled by the military conflict between Russia and Georgia.

Georgia shelled the capital of South Ossetia on Monday, a Russian news agency said, while Tbilisi said dozens of Russian bombers were attacking Georgia.

The FTSEurofirst is down 20 percent so far this year, led lower by financials, which have been battered by a global credit crisis. But the index is up 2.1 percent in August.

"If there is no major escalation in Ossetia, no negative developments in tensions between the West and Iran and no major hurricanes, stocks could end the summer on a positive note," said Touati. (Additional reporting by Blaise Robinson in Paris; Editing by Quentin Webb)