By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets headed for their
highest closing level in six years on Monday, with investors
shrugging off earlier worries over tighter credit conditions in
China and instead taking a lead from the U.S. where the S&P 500
scored an intraday record.
The Stoxx Europe 600 index gained 0.3% to 337.12, setting it on
track for the highest close since January 2008. The benchmark
wavered around the flat line earlier in the day, but tracked U.S.
stocks higher when they opened with solid gains after posting
losses at the end of last week.
Among notable movers, shares of Volkswagen AG slumped 6.9% after
the German car maker late Friday offered to buy out minority
shareholders in Scania AB for more than $9 billion. Scania shares
surged 32%. The Swedish company said late Sunday it decided to
appoint an independent committee to evaluate the Volkswagen
offer.
Analysts at Barclays lifted the rating on Scania to equal weight
from underweight after the buyout offer. J.P. Morgan Cazenove also
lifted Scania to neutral from underweight.
Shares of PostNL NV slid 20%, after the Dutch mail-service firm
reported a full-year loss that was wider than expected.
China credit worries
The broader European markets opened in negative territory after
a weak session in Asia, where concerns over the Chinese property
market dampened the investing mood. The Shanghai Composite closed
1.7% lower after local media reported that a medium-sized bank has
tightened its financing to property developers and stubbornly high
property prices triggered worries that Beijing could act as
well.
Mining firms were hit by the data, with shares of Rio Tinto PLC
(RIO) down 1.9% and BHP Billiton PLC (BHP) off 0.9%.
European investors largely ignored upbeat German data in the
morning, showing German business confidence brightened for a fourth
straight month in February. The Ifo business-climate survey climbed
to a better-than-expected 111.3, from 110.6 in January.
Inflation data also drew attention in the euro zone. Eurostat,
the European Union's official statistics agency, said euro-area
consumer prices fell at the fastest rate since records began in
2001 in January from December, adding to fears of slower domestic
demand in the region. Annual inflation was 0.8%, a bit higher than
the 0.7% previously estimated.
Low inflation -- and the risk of deflation -- is one of the main
concerns among European economists at the moment and market
participants speculate if the worries will be enough to trigger a
rate cut next week at the European Central Bank policy meeting. ECB
President Mario Draghi said over the weekend that by its March 6
meeting, the ECB should have the information it needs to decide
whether to provide more stimulus.
Preliminary inflation data out on Friday could add further
pressure on the ECB to loosen policy to tame deflationary
pressures, with most analysts expecting to see a further drop in
annual inflation. Analysts at Société Générale said in a note that
there is a 15% probability the euro zone will suffer deflation,
which is a low risk, "but too high to ignore."
In a volatile session, Germany's DAX 30 index climbed 0.1% to
9,669.03. The U.K.'s FTSE 100 index rose 0.1% to 6,843.84, and
France's CAC 40 index advanced 0.5% to 4,403.12.
Shares of Dixons Retail PLC jumped 6.8% and Carphone Warehouse
Group PLC rallied 8.8% in London after the two retailers confirmed
they are in preliminary discussions about a potential merger.
Shares of Bunzl PLC picked up 6.9% after the distribution and
outsourcing company reported an 8% rise in 2013 earnings per
share.
Banking heavyweight HSBC Holdings PLC (HSBC) dropped 3.4% after
reporting full-year earnings that missed expectations.
Elsewhere, Spain's IBEX 35 index climbed 1% to 10,168.10, after
Moody's Investors Service late Friday lifted the country's credit
rating to Baa2 from Baa3 with a positive outlook. The ratings
company said Spain has rebalanced its economy toward a more
sustainable growth model and improved its funding conditions since
the height of the euro-zone debt crisis in mid-2012.
Stocks in Ukraine rallied, with the UX Index jumping 15% to
1,075.97, according to the Ukrainian Exchange website. The gain
came after parliament members over the weekend voted to remove
President Viktor Yanukovych after he had signed a deal with the
opposition to resolve the recent political conflict in the
country.
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