LONDON (AFP) - Asian stocks posted strong gains Monday but European shares closed flat after weakness on Wall Street following news of a record 3.1 trillion dollar US budget proposal.
The London FTSE 100 index fell 0.05 percent to close at 6.026.20 points. In Paris the CAC 40 fell 0.09 percent to 4,973.64 while in Frankfurt the Dax shed 0.46 percent to end the day at 7,000.49.
The euro gained ground on the dollar as traders predicted the European Central Bank would maintain its key interest rates at current levels at a meeting on Thursday.
The single European currency in late-day trade was at 1.4827 dollars after 1.4796 dollars late Friday in New York.
Asian stocks closed sharply higher in the wake of Friday's Wall Street rally, with Shanghai surging more than eight percent, providing investors with some much-needed cheer after a dire start to 2008.
Microsoft's huge takeover bid for Yahoo galvanised buying interest that spread from New York to Asia, despite Friday's unexpectedly weak US jobs data.
Chinese share prices surged 8.13 percent, the biggest single-day gain in two and a half years, Tokyo ended up 2.69 percent, Seoul rose 3.4 percent and Hong Kong closed 3.8 percent higher.
In the United States, the budget proposal for 2009 forecasts hefty spending deficits, but includes an economic stimulus which many investors are keen to see approved amid mounting fears that the US economy is falling into a recession.
The Dow Jones Industrial Average was 0.62 percent lower at 12,663.61 in early afternoon trade.
The tech-rich Nasdaq composite fell 0.89 percent to 2,391.91 while the broad-market Standard & Poor's 500 index fell 0.70 percent to 1,385.65.
The economic stimulus is valued at 145 billion dollars in the budget proposal, but congressional lawmakers are haggling over its components. The stimulus has to be approved by Congress, before Bush can sign it into law.
"While a nice gesture, the 'rebate' proposed won't help consumers repair their stretched balance sheets, only 'Time in a Bottle' will likely make it work," Paul Nolte, a director of investments at Hinsdale Associates, wrote in a briefing note to clients.
The stimulus is likely to contain tax rebates and incentives for business.
US traders also said they were also keeping a close eye on Microsoft's 44.6-billion-dollar takeover bid for Yahoo which was unveiled by the software giant on Friday.
Internet titan Google said over the weekend that Microsoft's takeover bid for Yahoo raises questions about Internet "openness and innovation."
In London, leading shares closed flat, as the weakness on Wall Street offset gains fuelled by merger talk, notably about insurer Friends Provident and broadcaster ITV.
Bid rumours aided Friends Provident, which closed 3.46 percent higher at 140.7 pence, as speculation continued that JC Flowers was working on a fresh approach for the company after the conclusion of a strategic review.
Speculation also lifted ITV, up 2.75 percent to 78.6 pence, after weekend press reports suggested that three private equity groups are pondering a 3-billion-sterling bid for the company.
German shares closed higher despite the weaker opening on Wall Street, as earlier market gains from Asia and a good showing on Wall Street last week continued to have a positive impact.
Leading large-caps higher, travel and transport giant TUI added 5.69 percent to 15.80 euros, after breaking past a resistance barrier at 15 euros per share, a Frankfurt-based trader said.
MAN jumped 3.58 percent to 88.64 euros after Merrill Lynch added the stock to its "Capital Goods Most Preferred" list and ahead of the truckmaker's full-year figures out Thursday.
In Paris, a number of stocks saw profit-taking, with troubled banking group Societe Generale among the obvious targets after adding close to 19 percent last week on talk of a takeover approach.
The shares fell 4.77 percent to 83.61 euros. Dealers said the takeover talk was calming down temporarily, with investors pausing to wait for the bank's 5.5-billion-euro capital increase, rumoured to be held this week.
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