Buoyant car makers help keep Europe's stock rally alive

Reuters - UK Focus

* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 flat

* Orange (Other OTC: FNCTF - news) , Bouygues (Other OTC: BOUYF - news) , Iliad (Paris: FR0004035913 - news) drop as merger hopes fade

* Car makers rally after upbeat U.S. car sales

By Blaise Robinson

PARIS, July 2 (Reuters) - European shares rose on Wednesday,tracking a rally on Wall Street, though dashed merger hopesamong French telecoms companies kept a lid on gains.

European auto makers were some of the top gainers, with BMW up 0.9 percent and Fiat up 2.3 percent. Datashowed U.S. monthly auto sales reached levels not seen sincebefore the financial crisis that led to the bankruptcy of twoAmerican automakers. Annualized figures were the best in eightyears.

But shares in Orange, Bouygues, Iliad and Numericable tumbled 3.1-3.8 percent afterOrange said it was dropping the idea of joining in theconsolidation of France's telecoms market.

The stocks had rallied in recent months, boosted byexpectation of a wave of mergers after a heated battle for thetakeover of Vivendi's SFR mobile division, snatched byNumericable.

"While we all agree that there are further deals to be doneacross Europe, Orange doesn't seem to want to play ball, and themarket is voting against that," said Veronika Pechlaner, whohelps manage $13 billion of assets at Ashburton Investments.

Shares (Berlin: DI6.BE - news) of the French telecom-gear maker Alcatel (Paris: FR0000130007 - news) -Lucent surged 4.5 percent, however. JPMorgan analystsupgraded their rating on the stock to "overweight" from"neutral".

At 1046 GMT, the FTSEurofirst 300 index of topEuropean shares was up 0.3 percent at 1,386.99 points, while theeuro zone's blue-chip Euro STOXX 50 index was flat,at 3,259.33 points.

The FTSEurofirst 300 has gained 9 percent since mid-March,lifted by fresh European Central Bank stimulus measures as wellas expectations global growth is picking up.

"There are more signs that things are moving in the rightdirection in the developed economies," said Valentijn vanNieuwenhuijzen, head of multi-asset at ING InvestmentManagement, which is "overweight" equities and has a positivebias on European stocks.

On Wall Street on Tuesday, the Dow Jones industrial average and the S&P 500 closed at record highs, after datashowed manufacturing activity picked up in the United States andAsia.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up

(Additional reporting by Sudip Kar-Gupta in London and AlistairSmout in Edinburgh; Editing by Larry King)

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