By Sitaraman Shankar
LONDON, Feb 1 (Reuters) - European shares rose strongly on
Friday as merger activity led by a stake sale in Rio Tinto
<RIO.L> helped mask the impact of more bad news on the U.S.
economy in the shape of a weak jobs report.
The FTSEurofirst 300 <> index of top European shares
ended up 1.83 percent at 1,353.91 points, with advancers
outnumbering losers by 5 to 1.
Miners were the top weighted gainer on the benchmark, and
the DJ Stoxx European basic resources index <.SXPP> the top
percentage gainer among sectors, rose nearly 7 percent.
Rio was the biggest winner in Europe, up 12.8 percent, after
Chinese aluminium producer Chinalco said it had bought a stake
in the company jointly with U.S. group Alcoa <AA.N>.
BHP Billiton <BLT.L>, a suitor for Rio, ended up nearly 10
percent on investor hopes that it would be blocked from a costly
takeover. Vedanta <VED.L> gained 9 percent and Antofagasta
<ANTO.L> 7.3 percent.
Shares also gained from a monster $44.6 billion offer by
Microsoft <MSFT.O> for Yahoo Inc <YHOO.O>. Banks were propped up
by Societe Generale <SOGN.PA>, up 6 percent on a newspaper
report that rival Credit Agricole <CAGR.PA> had hired Lazard and
its own investment bank, Calyon, to study a bid. Credit Agricole
declined to comment.
The FTSEurofirst 300 index lost nearly 12 percent last
month, its worst monthly fall in more than five years, as
investors worried that the United States would slip into
recession, and banks would continue to make hefty writedowns on
investments linked to subprime, or risky U.S. mortgages.
Analysts said that the worsening economy was likely to be
the main factor in stock markets in the months ahead.
"From a strategic point of view, the medium-term outlook for
the equity market continues to be dominated primarily by the
deterioration of the macroeconomic environment and the newsflow
from financial stocks," UniCredit strategists wrote in a note.
"The developments argue for a defensive positioning -- it is
too early to overweight equities."
Tempering gains in the broader market overall was a gloomy
U.S. nonfarm payroll report that said 17,000 jobs were cut in
January, confounding consensus expectations of an increase of
80,000.
"There's a tug of war in the market. We have payrolls
shrinking but then we have had more M&A news in the last
24 hours than we had in the last 24 days," said a trader.
DATA SHOCKER
U.S. President George W. Bush said there were troubling
signs that the economy was weakening and urged Congress to move
on a stimulus package to help prop up the economy, which has
been hit hard by a housing slump and credit crisis.
Analysts focused on the payrolls figures, though a later
report showed a modest revival in manufacturing activity.
"If you looked at the ADP numbers two days ago, we were
certainly expecting something much better than this, but to come
in negative, that is a shock," said Commerzbank economist Peter
Dixon.
Among prominent European losers was Ericsson <ERICb.ST>,
which reported lower-than-expected profit for the fourth quarter
and offered little new insight into the first quarter.
And British Airways <BAY.L> lost more than 4 percent after
warning that rising fuel costs would become increasingly hard to
tackle.
Britain's FTSE 100 <> gained 2.5 percent, Germany's DAX
<> rose 1.7 percent and France's CAC 40 <> added 2.2
percent.
(Reporting by Sitaraman Shankar; Editing by Paul Bolding)
