Europe shares track Wall St sell-off; Holcim, Lafarge surge

Reuters - UK Focus

* FTSEurofirst 300 down 1.1 pct, Euro STOXX 50 down 0.7 pct

* Surge in volatility index signals rise in risk aversion

* Holcim (Other OTC: HCMLF - news) , Lafarge (Munich: CIL.MU - news) climb after confirming merger deal

By Blaise Robinson

PARIS, April 7 (Reuters) - European stocks dropped in earlytrading on Monday, halting a three-week rally and tracking asell-off on Wall Street on Friday where a number of high-growthcompanies mostly in the tech and biotech sectors tumbled.

Losses were cushioned, however, as M&A activity in Europefuelled hopes of some more consolidation.

At 0749 GMT, the FTSEurofirst 300 index of top European shares was down 1.1 percent at 1,338.20 points,slipping from a 5-1/2 year high hit on Friday.

The Nasdaq Composite sank 2.6 percent in New York (Frankfurt: HX6.F - news) onFriday as tech and biotech shares sank. The sell-off was not asurprise, said Aurel BGC chartist Gerard Sagnier, as followingtheir recent rally, indexes have been stalled by long-termtechnical resistance levels.

"This could be the start of a 'profit taking' consolidationperiod. People should buy only when the pull-back is done, whileit could also be time to hedge the portfolios," he said.

The Euro STOXX 50 Volatility index, known as theVSTOXX, jumped 10 percent on Monday, signalling a sharp rise ininvestor risk aversion.

The higher the VSTOXX - used to measure the cost ofprotecting stock holdings against market corrections as itusually moves in the opposite direction to cash equities - thelower investor appetite for risky assets such as stocks.

Despite the market's broad retreat on Monday, M&A feverhelped boost a number of shares across Europe.

Switzerland's Holcim unveiled an all-share deal tobuy France's Lafarge on Monday to create the world'sbiggest cement maker with combined sales of 32 billion euros($44 billion).

Holcim shares were up 3.7 percent while Lafarge gained 3percent, adding to their sharp rallies late on Friday after newsemerged that the two were in merger talks.

Numericable jumped 16 percent on Monday afterwinning a fierce month-long bidding war against mobile rivalBouygues (Other OTC: BOUYF - news) for the prize of SFR, as Vivendi (TLO: VIV.TI - news)announced it had decided to go with Numericable's offer.Bouygues shares were down 6.2 percent.

"A modest rebound in M&A might certainly help supportmarkets a little bit. I am not too optimistic about afull-fledged rebound in M&A because corporates overall are stillvery cautious. It will not be such a strong rebound what we haveseen in the peaks of the last cycles," said Gerhard Schwarz,head of equity strategy at Baader Bank (Xetra: BWB.DE - news) .

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 Atul Prakash in London; Editing byHugh Lawson)

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