July 2, 2014 / 11:31 AM / 4 years ago

Buoyant car makers help keep Europe's stock rally alive

* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 flat

* Orange, Bouygues, Iliad drop as merger hopes fade

* Car makers rally after upbeat U.S. car sales

By Blaise Robinson

PARIS, July 2 (Reuters) - European shares rose on Wednesday, tracking a rally on Wall Street, though dashed merger hopes among French telecoms companies kept a lid on gains.

European auto makers were some of the top gainers, with BMW up 0.9 percent and Fiat up 2.3 percent. Data showed U.S. monthly auto sales reached levels not seen since before the financial crisis that led to the bankruptcy of two American automakers. Annualized figures were the best in eight years.

But shares in Orange, Bouygues, Iliad and Numericable tumbled 3.1-3.8 percent after Orange said it was dropping the idea of joining in the consolidation of France’s telecoms market.

The stocks had rallied in recent months, boosted by expectation of a wave of mergers after a heated battle for the takeover of Vivendi’s SFR mobile division, snatched by Numericable.

“While we all agree that there are further deals to be done across Europe, Orange doesn’t seem to want to play ball, and the market is voting against that,” said Veronika Pechlaner, who helps manage $13 billion of assets at Ashburton Investments.

Shares of the French telecom-gear maker Alcatel-Lucent surged 4.5 percent, however. JPMorgan analysts upgraded their rating on the stock to “overweight” from “neutral”.

At 1046 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,386.99 points, while the euro zone’s blue-chip Euro STOXX 50 index was flat, at 3,259.33 points.

The FTSEurofirst 300 has gained 9 percent since mid-March, lifted by fresh European Central Bank stimulus measures as well as expectations global growth is picking up.

“There are more signs that things are moving in the right direction in the developed economies,” said Valentijn van Nieuwenhuijzen, head of multi-asset at ING Investment Management, which is “overweight” equities and has a positive bias on European stocks.

On Wall Street on Tuesday, the Dow Jones industrial average and the S&P 500 closed at record highs, after data showed manufacturing activity picked up in the United States and Asia.

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 Sudip Kar-Gupta in London and Alistair Smout in Edinburgh; Editing by Larry King

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