April 2, 2013 / 11:51 AM / in 5 years

M&A talk helps Europe stocks bounce after 2-week slide

* FTSEurofirst 300 up 1.1 pct, Euro STOXX 50 up 1.3 pct

* Euro STOXX 50 breaks above resistance level at 2,650 pts

* Vodafone surges 5 percent on renewed M&A talk

* Miners fall along with metal prices on demand worries

By Blaise Robinson

PARIS, April 2 (Reuters) - European shares rallied on Tuesday, bouncing after a two-week slide and with a blue chip index breaking above a resistance level, as M&A activity helped lift sentiment.

Vodafone, the world’s second largest mobile operator, surged 5 percent, boosted by a report saying U.S. firms Verizon Communications and AT&T have been working together on a break-up bid for the British group. Vodafone declined to comment.

Expectations of consolidation also boosted other big telecom stocks, with Telecom Italia up 1.9 percent and France Telecom up 1.3 percent.

At 1125 GMT, the FTSEurofirst 300 index of top European shares was up 1.1 percent, or 12.52 points, at 1,201.44, with Vodafone representing 1.15 points of the index’s rise.

The FTSEurofirst 300 has now retraced more than two thirds of a pull-back started in mid-March, when Cyprus’s bailout plan sparked fears of a bank run in the euro zone’s most indebted countries.

The euro zone’s blue chip Euro STOXX 50 index was up 1.2 percent on Tuesday at 2,656.80 points, piercing the 2,650 points level that had been seen as a key resistance level by traders.

“It’s a technical move. We’re re-testing previous highs on European indices and then there’s just a little bit of a short squeeze going on,” said Matt Basi, head of UK sales trading at CMC Markets UK.

“We’ve actually seen clients selling into the move so our clients certainly aren’t the believers in this morning’s rally. It’s taking place in fairly light volume in the underlying market.”

Most mining stocks bucked the trend on Tuesday, as metal prices such as copper and aluminium dropped, hurt by worries about demand following downbeat manufacturing data from the United States, China and Europe.

ArcelorMittal was down 3.2 percent, Norsk Hydro down 2.6 percent and Kazakhmys down 3.6 percent.

Factory data for March released on Monday signalled a weaker than forecast expansion in the United States while Chinese manufacturing activity failed to show a strong revival in its pace of growth.

In Europe, Markit’s Eurozone Manufacturing Purchasing Managers’ Index fell in March to 46.8 from 47.9 in February, although the figure was slightly better than a preliminary estimate of 46.6.

“We’re realising that China’s economic situation is more complicated then ... people had expected, and investors are starting to doubt that the country will be able to grow its economy by 7-8 percent this year,” a Paris-based trader said.

Around Europe, UK’s FTSE 100 index was up 1.1 percent, Germany’s DAX index up 1.2 percent, and France’s CAC 40 up 1.1 percent, while Spain’s IBEX was up 0.7 percent and Italy’s FTSE MIB 0.7 percent.

European stocks have sharply rallied since mid-2012 - with the Euro STOXX 50 gaining about 30 percent - lifted by the European Central Bank’s pledge to safeguard the euro, which eased fears of a break-up of the region’s currency bloc.

The rally stalled recently, however, halted by the return of worries about political risks in the euro zone, such as the political impasse in Italy following an inconclusive election and Cyprus’s mounting debt crisis, which have prompted investors to book some gains and move to the sidelines. (Additional reporting by Francesco Canepa in London and Alexandre Boksenbaum-Granier in Paris/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)

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