European shares up on M&A talk, Yahoo provides lift

FRANKFURT Feb 1 (Reuters) - European shares rose on Friday as takeover talk lifted stocks in mining companies, notably bid target Rio Tinto (RIO.L) and French bank Societe Generale (SOGN.PA), ahead of key U.S. jobs data later in the day.

Europe's benchmark FTSEurofirst 300 index .FTEU3 built on morning gains after news around midday of Microsoft's (MSFT.O) offer to buy Yahoo (YHOO.O) for $44.6 billion in cash and stock.

Rio was the top gainer in Europe, up 14.6 percent, after Chinese aluminium producer Chinalco said it had bought a 12 percent stake in the company jointly with U.S. producer Alcoa (AA.N).

"This news does highlight that Chinese players are very concerned about ensuring secure supplies of key raw materials and will take an active stance in any likely consolidation within the sector," Barclays Wealth said.

Lehman Brothers LEH.N confirmed it had bought shares in Rio for Chinalco at 60 pounds a share. The move comes days ahead of a deadline for BHP Billiton (BLT.L), the world's largest mining company, to make a firm offer for Rio or drop its proposed takeover.

"When consolidation of the largest miners draws to a close, investors are likely to rotate their mining sector exposure into the remaining sector plays," Killik & Co said.

Anglo American (AAL.L) and Lonmin (LMI.L) "offer the best upside potential", it said.

The DJ Stoxx basic resources index .SXPP, which includes miners, was up 8.3 percent. BHP Billiton rose 11.9 percent, Anglo American was up 7.2 percent and Lonmin gained 4.8 percent.

Societe Generale rose 5.2 percent after a report that local rival Credit Agricole (CAGR.PA) had hired advisors to consider a possible takeover approach. Shares in Credit Agricole, which declined to comment, traded virtually unchanged.

Top French bank BNP Paribas (BNPP.PA), which on Thursday confirmed it would look at making an offer for SocGen, fell 0.2 percent.

"We believe sizeable synergies could be generated," Bear Stearns said, referring to BNP acquiring SocGen.

"However, given Societe Generale's forthcoming 5.5 billion euro rights issue and ongoing revelations in relation to its trading losses, we believe BNP Paribas can afford to bide its time. Payment of a significant premium could prove dilutive," Bear Stearns added.

U.S. JOBS DATA

By 1155 GMT the FTSEurofirst 300 index .FTEU3 of top European shares was up 1.8 percent at 1,353.83 points. Advancing stocks led decliners by almost eight to one.

The FTSEurofirst is down 10 percent so far this year, after a January that marked its worst monthly performance since September 2002 amid concern about the U.S. economic outlook.

The U.S. jobs data are due at 1330 GMT and are expected to show a rise of 80,000 in the number of workers on non-farm payrolls, after December's rise of just 18,000, which preceded the Federal Reserve's first emergency rate cut on Jan. 22.

Strategists at Goldman Sachs saw corporate earnings grabbing the limelight near term, pushing economic data to the sidelines.

"The coming weeks will be dominated by earnings downgrades as consensus continues to expect 10 percent earnings growth this year, compared with our expectation of an 8 percent decline," the investment bank said in a European portfolio strategy note.

"We believe the market will now be increasingly driven by bottom-up earnings releases -- a shift away from the dominance of macro drivers in recent weeks," Goldman Sachs said.

Norwegian video conference systems maker Tandberg TAA.OL was Europe's leading loser on Friday, down 9.4 percent, in the wake of its fourth-quarter results, in which the company warned of weaker sales to some U.S. companies.

Ericsson (ERICb.ST) fell 1.9 percent after the Swedish telecoms equipment maker reported a drop in fourth-quarter operating profit to 7.6 billion Swedish crowns ($1.20 billion), missing analysts' estimates for a 7.9 billion crown profit.

British Airways (BAY.L) fell 4.5 percent after reporting nine-month results and warning that higher jet fuel costs would become increasingly hard to tackle.

"Investors fear that a recession, coupled with higher fuel costs and other cost inflation, plus open skies adding to competitive pressures will combine to hit earnings harder than presently anticipated," Barclays Wealth said.

Shares in Austrian Airlines AUAV.VI rose 9.1 percent after the carrier said late on Thursday that Saudi Arabian investor Mohamed Bin Issa Al Jaber plans to buy a stake in the company. (Additional reporting by Amanda Cooper in London; editing by Sue Thomas)