* FTSEurofirst <> up 1.3 percent
* Utilities, energy lead; banks recoup gains
* Drop in crude oil relieves some inflation concerns
By Amanda Cooper
LONDON, July 7 (Reuters) - European stocks rose on Monday,
driven by utility shares as merger speculation boosted Iberdrola
<IBE.MC>, and by a drop in the price of crude oil.
Iberdrola was a major gainer, rising by more than 7 percent
after Repsol <REP.MC>, the company's second largest shareholder,
said it saw no alternative to a merger between the company and
Gas Natural <GAS.MC>, which rose 4.5 percent.
Rivals EDF <EDF.PA>, Centrica <CNA.L> and Suez <LYOE.PA>
gained between 3 and 5.5 percent, helped by Iberdrola and
investor optimism on the outlook for stable earnings within the
sector.
The FTSEurofirst 300 index of top European shares <>
ended 1.3 percent higher at 1,178.69 points. The index fell 1.3
percent on Friday.
Oil and gas producers were among the top performers on the
broader market despite a lower oil price, as traders cited a
rebound from weakness last week.
BP <BP.L>, Total <TOTF.PA> and Royal Dutch Shell <RDSa.AS>
were up 2.5-4 percent.
"The fact that the sellers have been so persistent and
there's been nothing but selling over the last six weeks means I
think we are due a period of remission," said Mike Lenhoff,
chief strategist at Brewin Dolphin.
"If on top of that we get something like some decent news
out of the commodities markets, oil in particular, that's
great," he said.
Crude oil was trading more than 3 percent lower, having
earlier hit a session low of $140.12 a barrel, while the dollar
rose against a basket of major currencies <.DXY>.
But analysts were dubious over the resilience of the rally
in the equity market, given the prospect of slower economic
growth, stubbornly high commodity prices.
"We are still cautious for the short-term as we expect
ongoing high raw material and energy prices and bad news from
the economic front to keep being a burden for European stock
markets," Raiffeisen Bank said in an equity research note.
"The markets are in a state of high nervousness. Uncertainty
about the full implications of the financial crisis and fears of
higher inflation are reducing risk aversion," said AXA
Investment Managers, estimating that continental European
corporate earnings will fall by about 10 percent this year.
BANKS RECOUP LOSSES
Banking shares reversed an early slide and recovered some
gains, as HBSC <HSBA.L>, ING <ING.AS> and UniCredit <CRDI.MI>
rose 0.9 to 2.3 percent.
UBS <UBSN.VX> lost 2.5 percent and Credit Suisse <CSGN.VX>
fell 1.9 percent aftera Swiss weekly publication, citing
lawmakers, said Swiss authorities could require the two banks to
set aside an additional $68.3 billion in capital.
Other gainers included independent mobile phone retailer
Carphone Warehouse <CPW.L>, which rose 6.2 percent after Goldman
Sachs added the stock to its "pan-European buy list".
But overall, retailers <.SXRP> fell 0.1 percent, led by
Marks and Spencer (M&S) <MKS.L>, down 4.4 percent, on bearish
analyst views in the wake of last week's profit warning from the
British clothes, food and homewares group.
"The weaker UK consumer outlook and inherent cyclicality of
M&S' model means that M&S will not be able to maintain its
dividend for 2010, which we have cut by a third to 15 pence,"
JPMorgan said in a note, reiterating its "underweight" rating
and slashing its price target to 200 pence from 345 pence.
Other declining stocks included German health care company
Fresenius AG <FREG_p.DE>, which slid 9.3 percent after news of
its $3.7 billion acquisition of U.S. APP Pharmaceuticals
<APPX.O>. Traders cited concern about capital-raising measures
and the price.
Battered UK midcap mortgage lender Bradford & Bingley (B&B)
<BB.L> shed 16 percent as concern about its future persisted.
The company was forced to increase a planned rights issue to
400 million pounds ($789 million) on Friday after U.S. investor
TPG Capital pulled out of buying a stake.
(Additional reporting by Rebekah Curtis in London and Peter
Starck in Frankfurt)
