* FTSEurofirst 300 gains 0.7 pct as banks rally
* U.S. plan for Freddie Mac and Fannie Mae supports equities
* M&A boosts Alliance & Leicester, InBev, Continental, TNT
By Amanda Cooper
LONDON, July 14 (Reuters) - European shares rose on Monday
in trading dominated by merger activity that swept several
sectors, including brewers and banks, while a U.S. mortgage
rescue plan underpinned the broader equities market.
Global stocks took heart from a U.S. Treasury and Federal
Reserve plan that called for sweeping measures to lend money and
buy equity if needed in the government-sponsored enterprises,
Fannie Mae and Freddie Mac, which own or guarantee $5 trillion
in debt -- close to half of the value of all U.S. mortgages.
But fresh concern about the impact of the credit crisis on
the financial sector stripped U.S. stocks of their early gains
and pushed the European market back from the day's highs.
Banks were still the top gainers in Europe, helped in part
by the prospect of a safety net for the two mortgage lenders,
and by Spain's Santander <SAN.MC> which said it had reached a
deal to buy British bank Alliance & Leicester <ALLL.L>. A&L
shares surged 53 percent, while Santander was flat.
The FTSEurofirst 300 index <> of top European shares
was up 0.7 percent at 1,133.95 points, having risen earlier by
as much as 1.8 percent.
"The market in some ways is relieved that the authorities in
the United States have been able to come up with a solution to
cope with the problem of funding for Freddie Mac and Fannie Mac.
However, there is a realisation that there are still some
fundamental factors which are creating negative sentiment in the
global markets right now," said Barclays strategist Henk Potts.
The threat of runaway inflation, record-high oil prices and
the likelihood of slowing economic growth and its drag on
earnings have driven the FTSEurofirst down by about 30 percent
in the last year. The index is at its lowest in three years.
"There is a bit of relief that it seems for the short-term
problems of those specific financial institutions a solution has
been put forward but there are still some massive, massive
hurdles to overcome before investors can start being confident
about the future," Potts said.
BANKS GAIN
Even though analysts expressed doubt that the U.S.-backed
plan would cure the ills of the broader financial system,
European banks staged a recovery with the DJStoxx European banks
index <.SX7P> adding 1.1 percent.
Barclays <BARC.L> rose 0.8 percent, Lloyds TSB <LLOY.L>
rallied 2.5 percent and BNP Paribas <BNPP.PA> gained 2.4
percent.
"The fact that the U.S. institutions and congress are
bailing out the U.S. institutions Freddie Mac and Fannie Mae
draws a line under the financial system and shows that anything
really important to the system will not be allowed to fail,"
said Stephen Pope, chief global market strategist at Cantor
Fitzgerald Europe.
Santander, which has long been considered a potential buyer
of Alliance & Leicester, said it would pay $2.6 billion for the
British bank. The company has been able to secure a knockdown
price after a collapse in A&L's share price in the past year.
"It is a positive deal for Santander because it allows them
to gain market share in the UK for a very good price," analyst
Sandra Neumann at WestLB said. "They were in discussion before
but no price was settled on. Now the UK banks are of course very
cheap."
InBev <INTB.BR> fell 3.4 percent after U.S. brewer
Anheuser-Busch <BUD.N> accepted a sweetened $52 billion takeover
bid from the Belgian beermaker. Analysts voiced relief a bidding
war could be avoided.
Dutch mail group TNT <TNT.AS> rallied 26.4 percent on the
back of a newspaper report that U.S. peer FedEx <FDX.N> was in
early talks to acquire the group.
TNT and FedEx declined to comment.
German tyre and automotive systems maker Continental
<CONG.DE> rose by more than 21 percent amid talk of bid interest
from Schaeffler Group. Continental said it held talks with
Schaeffler.
Other gainers included Philips <PHG.AS>, which rallied 6.4
percent after beating consensus forecasts with its
second-quarter earnings as its consumer business held up against
a weaker economic backdrop.
Spanish construction group Ferrovial <FER.MC> rose 4 percent
after it announced a key step in its long-awaited refinancing
plans for its British unit BAA.
Monday's decliners included energy shares, which fell as
crude oil <CLc1> held around $145 a barrel. Total <TOTF.PA> and
Royal Dutch Shell <RDSa.L> fell 1 to 1.3 percent, while BP
<BP.L> was flat.
(Additional reporting by Patrizia Kokot; editing by Rory
Channing)
