September 13, 2013 / 10:46 AM / 4 years ago

European stocks dip, M&A fever limits downside

4 Min Read

* FTSEurofirst 300 dips 0.1 pct, Euro STOXX 50 down 0.2 pct

* Investors reluctant to take fresh bets ahead of Fed

* Europe stocks see 3rd best weekly inflows on record -Lipper

By Blaise Robinson

PARIS, Sept 13 (Reuters) - European stocks dipped in early trade on Friday, halting their week-long rally, although the retreat was limited by M&A activity in the healthcare and media sectors.

Shares of German hospital chain Rhoen-Klinikum jumped 11 percent in huge volumes after saying it will sell assets to Fresenius for 3.07 billion euros. The news also boosted Fresenius shares, up 4.3 percent.

Kabel Deutschland surged 5.9 percent, propelled by news that Vodafone had secured enough shares in the German cable company for its 7.7 billion euro takeover offer to succeed.

At 1000 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,245.44 points, while the euro zone's blue-chip Euro STOXX 50 index was down 0.2 percent at 2,855.11 points, retreating from a two-year high hit on Thursday.

A wave of recent M&A deals, mostly in the tech, telecom and media sectors has helped support European equities in the past few weeks, fuelling expectations of further takeover deals as the economy recovers.

"Now that companies have cut costs and cleaned up their balance sheets, they are full of cash and ready to gain market share, and given the slow economic growth, the best way to do that is by taking over other companies," Montaigne Capital fund manager Arnaud Scarpaci said.

According to data from Thomson Reuters Worldscope, euro zone companies listed on the MSCI EMU index have on aggregate about 800 billion euros in cash on their balance sheets.

"Until now, the M&A frenzy has mostly been in the telecom sector, but I can see it spreading to other sectors, such as utilities," Scarpaci said.

Around Europe, the UK's FTSE 100 index was down 0.3 percent, Germany's DAX index was off 0.2 percent, and France's CAC 40 was 0.2 percent lower.

Shares in Danish telecoms operator TDC were down 3 percent after shareholder KKR sold a stake in the company.

Despite the M&A frenzy, investors were reluctant to take fresh bets ahead of the U.S. Federal Reserve's policy meeting next week, at which the central bank is set to trim stimulus measures.

According to a Reuters poll of economists released earlier this week, the Fed is seen announcing that it will curb its monthly spending on asset purchases by $10 billion, a smaller amount than previously expected.

The Fed's quantitative easing programme has been a major driver of the global equity rally over the past year, with the FTSEurofirst 300 up 32 percent since June 2012.

"The market has risen quite a lot, so even though we're positive for the medium term, we're looking at booking profits on a number of stocks at these levels," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris.

"But all in all, the end of the Fed's quantitative easing is good news. It means that the U.S. economy is back on track. There will be collateral damage though, in emerging markets in particular, while Europe should benefit from the flow dynamic."

Investment flows from U.S.-based investors into European equities have recently accelerated, Thomson Reuters Lipper data shows, with the region's stocks enjoying their third-biggest weekly net inflows since Lipper started to track the data in 1992.

A Lipper poll of U.S.-based funds invested in European equities, which include exchange-traded funds' (ETFs) holdings, shows the funds added a net $797 million in the week, an 11th straight week of net inflows from U.S. investors.

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