(Updates with closing levels, details)
* FTSEurofirst 300 up 0.6 pct, sixth positive session in row
* French, U.S. manufacturing data help boost sentiment
* All eyes on ECB meeting in wake of Weidmann comments
* Negative earnings momentum seen as "red flag"
By Blaise Robinson
PARIS, April 1 European stocks climbed on
Tuesday, extending their two-week rally, helped by M&A fever as
well as robust French and U.S. factory data.
France's blue chip index CAC 40 hit a 5-1/2 year
high, gaining 0.8 percent on the day, after data showed the
manufacturing sector emerging from a long decline to grow even
more strongly in March than initially estimated.
Overall, data showed growth in euro zone manufacturing eased
slightly as expected, but the broad rise in output made the
bloc's economic recovery look more entrenched, fuelling hopes of
a long-awaited rebound in corporate profits.
Spanish stocks also rallied strongly, with the IBEX
gaining 1.2 percent. A government source said on Tuesday Spain
could raise its 2014 GDP growth forecast to between 1 percent
and 1.5 percent as an economic recovery gathers pace.
In a similar picture from the other side of the Atlantic,
the Institute for Supply Management (ISM) said its index of U.S.
factory activity rose to 53.7 in March, up slightly from
February's read of 53.2, accelerating for a second straight
month as production rebounded.
The FTSEurofirst 300 index of top European shares
ended 0.6 percent higher at 1,340.96 points, gaining ground for
the sixth consecutive session. The benchmark index - which
recorded a gain of 1.3 percent in the first quarter - has risen
about 5 percent since mid-March.
The euro zone's blue-chip Euro STOXX 50 index
rose 0.8 percent on Tuesday, to 3,186.34 points, hitting a level
not seen since September 2008.
The European stock market's rally in the past few days has
been fuelled in part by mounting expectations of new stimulus
measures from the European Central Bank, cemented by
lower-than-expected euro zone inflation data.
Last week, ECB policymaker Jens Weidmann said negative
interest rates were an option, and that buying loans and other
assets from banks to support the bloc was not out of the
question. His comments surprised investors, given the monetary
conservatism of the German central bank he heads.
"The comments made by Weidmann were very clear: the door is
now open for quantitative easing in Europe, which is very good
news for markets. This could be a game changer," Valquant
strategist Eric Galiegue said.
"But beyond the support from the ECB, investors have plenty
of reasons to be cautious at this stage. In Europe for instance,
despite all the hype about a potential rebound in profits,
earnings momentum remains negative, which is a red flag for me."
Despite the gains in stocks, Europe's earnings momentum -
analysts' forecast upgrades minus downgrades as a percentage of
the total - has been deteriorating since late January.
It has slipped from -2.9 percent two months ago to -4.6
percent, data from Thomson Reuters Datastream shows,
highlighting an acceleration in analyst downgrades before the
first-quarter earnings season. For a chart on earnings momentum,
However, M&A activity also boosted the mood on Tuesday, with
Alstom rising 8.1 percent, after the French turbine
and train maker said it would sell its heat exchange unit to
Triton, a European private equity group.
Shares in Metso surged 19 percent after Scottish
Weir Group approached the Finnish company over a
possible $5 billion merger.
"(These deals) are encouraging as they indicate confidence
in the markets that corporates are willing to put their hands in
their pockets to undertake M&A," said Neil Wilkinson, European
equities fund manager at Royal London Asset Management.
Investors also welcomed reports that global mining company
BHP Billiton was weighing options to simplify its assets
including a possible spin-off of some businesses, sending its
shares up 2 percent.
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 in London; Editing by