Europe up on takeovers prospects

A new wave of bid activity helped European stock markets defy the gloom in the financial sector this week.

After European shares posted their worst monthly decline since September 2002 in January, the benchmark FTSE Eurofirst 300 began February with a rally and closed 1.8 per cent higher on the week at 1,353.91.

Mining and metals stocks were lifted by a wind from the east on Friday after Chinalco, the Chinese aluminium producer, said it had bought a joint 12 per cent stake in Rio Tinto with US producer Alcoa.

ArcelorMittal gained 8.1 per cent to EU47.2 and French mining firm Eramet gained 4.9 per cent to EU355.02, while in Germany steel firm Salzgitter surged 14.6 per cent to EU111.1 and ThyssenKrupp added 5.2 per cent to EU34.7.

In Scandinavia, Norwegian aluminium producer Norsk Hydro (NYSE:NHY) jumped 11.7 per cent to NKr67.70 and Swedish steel company SSAB's B-shares added 9.3 per cent to SKr159.

In the beleaguered financial sector, there was also bid talk as predators circled French bank Société Générale in the wake of its rogue trading scandal.

Analysts said the bank's credibility was too badly damaged for it to survive in its current form.

SocGen charged ahead 18.9 per cent to EU87.8 with long-time rivals BNP Paribas and Credit Agricole said to be mulling an approach.

BNP slid 0.3 per cent lower to EU65.28, while Credit Agricole rose 3.3 per cent to EU20.93.

"The financial sector is rocking back and forth between negative stories and the Fed and companies trying to reassure investors that the situation is not as bad as they fear," said Philippe Gijsels, senior equities strategist at Fortis Global Markets.

The Federal Reserve cut rates once again this week, but all eyes were focused on a possible bail-out for embattled bond insurers. The monoline bond insurers, face losing their crucial AAA ratings because of subprime mortgage losses.

Fears that downgrades would create a ripple effect that could eat into the value of banks' holdings sent Swiss wealth manager UBS sliding 3.8 per cent to SFr44.4.

Meanwhile, Ireland's banks were all downgraded one notch by UBS on Monday on fears that the Irish commercial property market would burst, knocking their business model.

Allied Irish Banks dropped 4.2 per cent to EU15.31 while Bank of Ireland (NYSE:IRE) shrugged of the downgrade rising 1.3 per cent to EU10.2, Anglo-Irish Bank added 0.2 per cent to EU9.9.

In Spain, the titans of the energy sector were squaring up for a fight to carve up energy giant Iberdrola, which jumped 10.9 per cent to EU10.36 on bid speculation.

A report that France's EDF and ACS, Spain's biggest construction company, were in talks to bid for the Spanish energy company lifted Iberdrola on Wednesday, and the stock was buoyed further by talk later in the week that Germany's Eon was set to enter the fray.

EDF fell 2.2 per cent to EU69 while ACS gained 4.7 per cent to 35.91. Eon edged down 0.7 per cent to 126.25.

ACS said it had not reached an agreement with EDF on making a takeover bid for Iberdrola, but did not deny it was in talks. Analysts said the political hurdles to a hostile takeover remain high.

Portuguese oil company Galp Energia climbed 4.6 per cent to EU16, lifted by the increased free float created by Iberdrola sale of its 3.8 per cent stake in the company on Wednesday