European pharmaceutical stocks benefited early Friday from news U.S. giant Pfizer Inc. (PFE) is in takeover talks with smaller rival Wyeth (WYE), but analysts cautioned that an eventual deal won't necessarily kick start a new round of M&S in the sector.

"The credit market situation is improving, but it's of course not clear if this deal could be financed through bank loans as the bank's situation is constantly evolving," said Karl-Heinz Koch, analyst in Zurich, with independent broker Helvea.

The Wall Street Journal reported Friday that Pfizer Inc. is in talks to acquire Wyeth in a deal that could be valued at more than $60 billion, citing people familiar with the matter.

A combination of these two U.S. pharmaceutical giants would redraw the boundaries of the global drug industry, which has suffered from flagging product development and high fixed costs. The two sides have been in discussions for months and a deal isn't imminent. Given recent market volatility and overall economic uncertainty, the talks are especially fragile and could collapse, the people warned.

Still, European stocks are benefiting amid hopes that big deals may again become a possibility.

At 0840 GMT, the Stoxx Europe (600) Health Care Index was up 1.2%.

The notable exception was Dutch vaccine maker Crucell (CRXL) which saw its share price sink amid worries its friendly takeover talks with Wyeth might now be stalled.

Pharmaceutical analysts cautioned though that Pfizer's situation is different to that of many of its rival because it faces a particularly steep decline in revenue over the next five years when a number of key drugs will lose patent protection.

"I don't expect the Swiss companies to engage in a similar big deal," Helvea's Koch said.

Another Zurich-based analyst pointed out that Novartis already is involved in a potentially huge transaction if it choses to exercise an option to buy shares of eyecare maker Alcon (ALC) that it doesn't already owns. Novartis has the exclusive right to acquire food group Nestle AG's (NESN.VX) remaining 52% Alcon stake at a price of up to $28 billion.

Roche, for its part, has been in talks to fully acquire biotechnology Genentech Inc. (DNA) since July. Roche already owns a majority of Genentech, which so far has rejected an offer to buy the remaining shares as too low. Investors have also worried whether Roche will manage to complete the $44 billion deal because capital markets have deteriorated since the deal was announced.

"Should Pfizer manage to complete the Wyeth deal, and finance it partly through bank loans, that would certainly send an encouraging signal for the Roche/Genentech transaction, the Zurich-based analyst said.

At 0840 GMT, Novartis was up CHF0.50, or 1%, at CHF52.50 and Roche was CHF0.70, or 0.4%, higher.

Company Web Site: http://www.roche.com

http://www.novartis.com

-By Anita Greil, Dow Jones Newswires; +41 43 443 8044 ; anita.greil@dowjones.com

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