European shares get M&A boost, climb to one-year high

LONDON (Reuters) - European shares climbed to a one-year high on Thursday, supported by mergers and acquisitions-related optimism, with Johnson & Johnson's JNJ.N $30 billion deal to buy Actelion ATLN.S lifting shares in the Swiss biotech firm.

A worker shelters from the rain under a Union Flag umbrella as he passes the London Stock Exchange in London, Britain, October 1, 2008. REUTERS/Toby Melville/File Photo

Actelion surged 20 percent after the U.S. healthcare giant’s move to make an all-cash purchase that includes spinning off Actelion’s research and development pipeline. The acquisition gives J&J access to the Swiss group’s line-up of high-price, high-margin medicines for rare diseases.

“We are likely to see more of such deals as many companies that want to merge or acquire other firms could use the current low bond yield environment to fund such initiatives,” said Christian Stocker, strategist at UniCredit in Munich.

“I am very positive on European stocks in the first quarter as several sectors, in particular financials and industrials, are witnessing an increase in their earnings momentum.”

The pan-European STOXX 600 index .STOXX was trading 0.5 percent higher by 0950 GMT after hitting its highest level since December 2015. Germany's DAX .GDAXI rose to its highest since May 2015 and was last quoted 0.5 percent higher.

Sentiment improved after the Dow Jones Industrial Average closed above the 20,000 mark for the first time as solid earnings and optimism over U.S. President Donald Trump’s pro-growth initiatives revitalized a post-election rally.

The broader market also got help from some positive earnings reports. Franco-Italian chipmaker STMicroelectronics STM.PA rose 6.6 percent after posting in-line results for the final quarter of 2016, driven by solid phone and car part sales and improved factory utilization.

Diageo DGE.L, the maker of Johnnie Walker Scotch and Smirnoff vodka, rose 4.8 percent after the world's largest distilled drinks company reported a better-than-expected rise in sales, helped by improvements in its U.S. business that boosted confidence in its future performance.

“We are pleased to see Diageo doing exactly what it is meant to do: drive out organic growth from its portfolio of premium global brands, throwing off cash as it does,” said Steve Clayton, fund manager of the Hargreaves Lansdown Select UK Shares fund, which holds a position in Diageo.

Royal Bank of Scotland RBS.L rose 4.5 percent as investors cheered a 3.1 billion pound ($3.92 billion) provision taken by the bank to settle claims in the United States that it mis-sold toxic mortgage-backed securities.

Intrum Justitia IJ.ST was up nearly 6 percent after the Swedish debt collector's fourth quarter operating profits came in above market expectations.

However, some companies disappointed on the earnings front, resulting in a sharp sell-off in their shares.

Daily Mail and General Trust DMGOa.L fell more than 7 percent, the top faller on the STOXX Europe 600 index, after the owner of the Daily Mail newspaper cut its revenue outlook for its Information division. It said the unit had been hit by a slowdown in the British property market.

Editing by Richard Lough