M&A boost helps European shares get off to strong start in Q2

Tue Apr 1, 2014 6:45am EDT

* FTSEurofirst 300 rises 0.4 pct

* Alstom, BHP Billiton up on spin-off hopes

* Metso surges as Weir considers bid

* Stimulus chatter in China, U.S. lends support (Adds quotes, details, updates prices)

By Alistair Smout

LONDON, April 1 (Reuters) - European stocks got off to a brisk start in the second quarter, with merger-and-acquisition activity driving gains by industrial and mining stocks.

Alstom rose 7.2 percent on Tuesday, making it the top performer on the FTSEurofirst 300. The French turbine and train maker said it would sell its heat exchange unit to Triton, a European private equity group.

"Alstom are doing this from a position of weakness, as their operating cash flow has been quite poor," said Neil Wilkinson, European equities fund manager at Royal London Asset Management.

"It's more to shore up their balance sheet, while other cases, like the Metso-Weir deal, are encouraging as they indicate confidence in the markets that corporates are willing to put their hands in their pockets to undertake M&A."

Finland's Metso benefited from a report that Britain's Weir Group was interested in buying its fellow engineering company, surging as much as 21 percent to the top of the STOXX Europe 600 after Weir confirmed the reports were true.

Weir Group fell 2.5 percent, the biggest decline on the FTSEurofirst 300.

Investors also welcomed reports global mining company BHP Billiton was weighing options to simplify its assets, including a possible spin-off of unwanted businesses. Its shares were up 2.3 percent.

"Ultimately it's a good move, a strategic move and they're not being complacent. Within the mining sector, you have to be even more focused," said Mike McCudden, head of derivatives at Interactive Investor.

The pan-European FTSEurofirst 300 index was up 0.4 percent at 1,339.37 points. Expectations of further economic stimulus by U.S. and Chinese authorities helped to drive the gains.

Weakness in China's manufacturing has led to speculation of government spending to spur growth, boosting demand for basic resources stocks. They gained 0.9 percent to be the region's top sectoral riser.

Investors were also reassured by U.S. Federal Reserve Chair Janet Yellen, who said monetary policy would need to remain easy for some time.

The comments were seen as more dovish than her first news conference as head of the central bank, when she said that the Fed may raise rates as early as spring 2015, sending stocks lower.

"Yellen's comments overnight calmed nerves somewhat, and she's learning that every word and nuance she utters will be pored over and analysed in every minute detail," RLAM's Wilkinson said.

Stocks are usually strong at the beginning of a new month, as investors adjust portfolios and position for the month ahead. But Tuesday's gain looked set to buck a recent losing streak.

The FTSEurofirst 300 has fallen every first trading day of the month since November, after rising on 15 of the previous 18 first trading days.

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

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

Today's European research round-up

(Editing by Tom Heneghan)

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