European shares hit 15-month high on 1st session of 2010

European shares hit 15-month high on 1st session of 2010

London: European shares kicked off the new year by hitting a 15-month high on Monday, extending last year’s sharp rally as positive economic data, stronger commodity prices and merger and acquisition news boosted sentiment.

By 1134 GMT, the FTSEurofirst 300 index of top European shares was up 0.8% at 1,053.71 points, after touching 1,055.29, its highest point since early October of 2008.

The index rose 26% in 2009 -- its best yearly gain in a decade and following a dismal 2008 when it slipped 45%. It has surged 63% since hitting a record low in March 2009.

Volumes, however, remained low on the first trading day of 2010 as many brokers were still on holiday. By midday, around 52 million shares had changed hands, representing 23% of the index’s 90-day daily average.

“Despite (things) being difficult on a macro perspective, the corporate picture is much better," said Henk Potts, equity strategist at Barclays Wealth.

“Investors are right to be optimistic about the outlook for equities. We certainly believe that it’s going to be the best performing asset class during the course of this year."

Financials were the top gainers, with the DJ STOXX banking index rising 1.2% after surging 48% in 2009. Royal Bank of Scotland rose 5.1% and Lloyds Banking Group added 2.1%. The Sunday Times said Brazilian lender Itau Unibanco was considering buying stakes in one of the British banks rescued by the UK government.

Other banks were also firmer, with HSBC, Standard Chartered , Barclays, BNP Paribas and Societe Generale rising 0.8 to 1.1%. Miners were also in demand as base metals prices advanced. Copper gained more than 1% to hit a fresh 16-month high, building on gains of about 140% last year, on strikes in top producer Chile and on a brighter demand outlook.

The DJ STOXX basic resources index, which spiked 102% in 2009, was up 2.3%. BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and ENRC rose 0.3 to 3.3%.

M&A news helps

The market also got support from merger and acquisition (M&A) news. Switzerland’s Novartis aims to buy the rest of US eye care group Alcon for $39.3 billion, including a majority stake from Nestle, to diversify away from prescription drugs.

Novartis was down 1%, but the sector as a whole was up. AstraZeneca, GlaxoSmithKline, Novo Nordisk, Roche Holding, Sanofi-Aventis and Shire rose 0.3 to 1.5%.

Nestle rose 1.7%, against a 1.1% rise in the DJ STOXX food and beverage index. Analysts said Nestle could also use some of the Alcon proceeds for acquisitions, with the fiercest speculation around whether it might bid against Kraft Foods for British confectioner Cadbury. Cadbury shares were up 0.7%.

The Sunday Times said Kraft was preparing to sweeten its hostile $15.9 billion takeover bid, while Italy’s Il Sole 24 Ore reported Ferrero had met private equity firms as well as Hershey to discuss a possible offer.

“It is possible that we will see quite a bit of M&A this year because companies still have quite a bit of cash and those who are in (a) strong position would try to take advantage of those who are in weakness," said Philip Gijsels, senior equity strategist at Fortis Bank in Brussels.

Energy shares tracked crude oil prices, which jumped 2% on news that Russia has halted oil supplies to Belarus and on cold weather in the United States.

BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro added 0.6 to 1.7%. Cairn Energy rose 5.5% after it said it has secured a second drilling rig for an exploration programme in Greenland.

On the macro front, a survey showed manufacturing activity in the euro zone expanded at its fastest rate in 21 months in December, but new orders growth slowed slightly.