* FTSEurofirst closes up 0.04 pct, off earlier highs
* Euro STOXX 50 ends up 0.8 pct
* Signs of Berlusconi boost in Italy vote hits equities
* Takeover talk lifts Elan and Deutsche Boerse
By Sudip Kar-Gupta
LONDON, Feb 25 (Reuters) - Uncertainty over Italy’s general elections dragged European stock markets off earlier highs, on concerns that an unclear outcome could hamper the country’s efforts to implement economic reforms.
The pan-European FTSEurofirst 300 index closed up 0.04 percent at 1,166.07 points, while the euro zone’s blue-chip Euro STOXX 50 index advanced 0.8 percent to 2,651.86 points.
However, both indexes fell sharply from earlier intraday highs on signs that the Italian centre-right party, led by former leader Silvio Berlusconi, could win the Senate vote, raising the spectre of deadlock in parliament.
Italy’s FTSE MIB equity index also fell from earlier highs to close up 0.7 percent.
Berlusconi has attacked the austerity measures of the centre-left bloc, which many investors want to win the election so Italy can continue with steps to tackle its debt problems.
Kevin Lilley, European equity fund manager at Old Mutual Asset Managers, said he had sold European bank stocks in the run-up to the Italian vote.
He added he could sell more equities if Berlusconi’s centre-right party won the Senate, while he might buy back some of those bank stocks he had earlier sold if the centre-left came out on top.
“It will be ‘risk-off’ if Berlusconi wins. Italian bond yields will go up in the short-term,” he said.
Several equity strategists have said European equities may be boosted this year as companies return to making takeovers, having saved up warchests of cash after the 2008 global financial crisis.
Takeover talk sent both Irish drugmaker Elan and Deutsche Boerse to the top of the FTSEurofirst 300 on Monday.
Elan surged 6.9 percent after getting a $6.6 billion bid from U.S. investment firm Royalty Pharma.
Speculation of a merger between Deutsche Boerse and Chicago Board of Trade owner CME also caused a 5.6 percent rise in the share price of Deutsche Boerse, although Deutsche Boerse said it was not in talks with the CME.
However, traders expected European equity markets to remain pegged back in a relatively tight trading range for this month until the Italian election situation became clearer.
Francois Savary, chief investment officer at Swiss bank Reyl, said he remained uncertain over the extent to which equity markets would rise much further in the near-term, and had bought ‘put’ options on the U.S. S&P 500 index to cash in on any stock market decline in April.
Toby Campbell-Gray, head of trading at Tavira Securities, said European equity markets would be choppy while the Italian situation remained unclear, with the Euro STOXX 50 Volatility index rising 2.2 percent on Monday.
“The market’s going to become a little bit more volatile until the conclusion of the vote,” he said.