Leisure stocks push European equities to multi-year high

Tue May 27, 2014 11:23am EDT

* FTSEurofirst 300 index rises 0.2 percent

* Intercontinental Hotel gains on M&A talk

* Travel and leisure index top gainer in Europe

By Atul Prakash

LONDON, May 27 (Reuters) - European shares climbed to multi-year highs on Tuesday, with encouraging U.S. economic data, mergers and acquisitions talk and expectations of more policy easing by the European central Bank improving sentiment.

Latest economic numbers showed orders for long-lasting U.S. manufactured goods unexpectedly rose in April, home prices advanced more than expected in March and consumer confidence rose to near its highest since 2008.

The market was supported by comments from ECB chief Mario Draghi on Monday bolstering the view that it will cut euro zone interest rates again next week. Other policymakers drove home the message on Tuesday.

Acquisition talks also helped the market. The STOXX Europe 600 Travel and Leisure index was up 1.4 percent by 1446 GMT, the highest since 2007, led by Intercontinental Hotel Group after media reported deal interest from an unidentified bidder in the United States.

"There is a lot of cash on corporate balance sheets and there is a big incentive for them to go out and deploy that cash to generate growth and cost synergies," Henk Potts, equity strategist at Barclays Wealth, said.

Shares in Intercontinental Hotel Group (IHG) surged 4.4 percent, the top performer on the pan-European FTSEurofirst 300 , which was up 0.2 percent at 1,379.81 points after climbing to its highest since early 2008. In the United States, the S&P 500 index hit a fresh record high.

Sky News, citing unidentified sources, said the world's largest hotelier, IHG, had rejected a 6 billion pound ($10.1 billion) takeover offer from a U.S. bidder on the grounds it was too low. Am IHG spokeswoman declined to comment on the report.

Credit Suisse said in a note that a potential deal could generate savings of about $50 million annually and there could be benefits from an altered tax domicile.

French peer Accor, Europe's largest hotel group, gained 1.3 percent after saying on Tuesday it had agreed to buy the assets of 97 hotels for about 900 million euros, in a move the company said would boost earnings.

"We are going to have a sense of normality in 2014 after the financial crisis when it was more about defending the balance sheet. We expect more M&As and IPOs and that would be a bullish indicator for the rest of the year," Lorne Baring, managing director of B Capital Wealth Management, said.

"The European stock market's outlook looks positive as there is some momentum and the European election has passed without any great surprise. Valuations are still relatively attractive and dividend yields are quite good."

The reopening of British markets after a holiday helped support stocks across the continent. The FTSE 100 rose 0.5 percent, while Germany's DAX was up 0.4 percent after setting a new record high for a second day in a row.

On Monday, the DAX climbed to a life-time high and Italy's FTSE MIB rose 3.6 percent as strong showings by pro-European forces in Germany and Italy helped balance Eurosceptic gains in France, Britain and Greece.

Investors remained positive on the stock market's outlook on expectations that the European Central Bank could announce some market-friendly measures during its policy meeting on June 5 to support the region's economy.

"Draghi signalled yesterday a readiness to act on low inflation, which could be warming us up for June intervention and helped risk appetite," said Mike van Dulken, head of research at Accendo Markets.

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

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

Today's European research round-up (Additional reporting by Alistair Smout; Editing by Alison Williams)

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