Buoyant carmakers keep European stock rally on track

Reuters - UK Focus

* FTSEurofirst 300 up 0.1 pct, up 0.9 pct so far this week

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

* Carmakers rally after upbeat U.S. auto sales

By Blaise Robinson

PARIS, July 2 (Reuters) - European shares inched up onWednesday, tracking a rally on Wall Street, though dashed hopesof merger moves among French telecoms companies kept a lid ongains.

Automakers were among the top gainers, with Daimler (Xetra: 710000 - news) up 0.5 percent and Fiat up 1.1 percent. Datashowed U.S. monthly auto sales reached levels not seen sincebefore the financial crisis, and annualized figures were thebest in eight years.

But shares in Orange, Bouygues, Iliad and Numericable tumbled 2.6-4.1 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) in French telecom gear maker Alcatel (Paris: FR0000130007 - news) -Lucent surged 4.3 percent, however. JPMorgan analysts upgraded theirrating on the stock to "overweight" from "neutral".

At 1358 GMT, the FTSEurofirst 300 index of topEuropean shares was up 0.1 percent at 1,383.78 points.

The FTSEurofirst 300 has gained about 9 percent sincemid-March, lifted by fresh European Central Bank stimulusmeasures as well as expectations that global growth is pickingup.

"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. U.S. stocks were up again in early trade onWednesday.

"The positive trend in U.S. equities is quite impressive,particularly for the Nasdaq, boosted by all the M&A and IPOs,"FXCM (NYSE: FXCM - news) analyst Vincent Ganne said.

Ahead of Thursday's U.S. non-farm payrolls figures, the ADPNational Employment Report showed on Wednesday U.S. companieshired 281,000 workers in June, marking the biggest monthlyincrease since November 2012 and well above market expectations.

"These ADP figures are usually a good indication for thepayrolls data," Ganne said.

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 John Stonestreet)

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