European stocks closed higher on Monday,extending gains after a massive takeover bid by Kraft Foods for British rival Cadbury signalled a fur t her return to normality in the markets, dealers said.
They said mer gers and acquisition activity had always been a key driver for sentiment and so Krafts near 17-billion-dollar offer for Cadbury gave investors a real boost.
Britains leading share index jumped 1.7% on Monday, after a proposed bid for Cadbury by Kraft raised hopes of a more general pick-up in merger activity and lifted banks and commodity shares.
The FTSE 100 closed up 81.48 points at 4,933.18, as it came close to beating its high for the year, while registering its biggest percentage gain in more than two weeks.
Cadbury soared 38% to its highest closing level since June 2007, after North Americas Kraft Foods announced a $16.7 billion bid which was rejected by the worlds second-largest confectionery group.Whats really significant about this (bid for Cadbury) is that it is another statement of confidence that managers of companies have in the prospects for their operating environment given that the recovery is now under way in the global economy, said Mike Lenhoff, chief strategist at Brewin Dolphin.My guess is that we are going to see more of this.This is exactly the kind of thing you tend to see during recovery phases of the cycle, he said.
Meanwhile Associated British Foods gained 4.1%after the firm increased its full-year earnings forecast on the back of strong results from its Primark discount clothing retailer chain.
Unilever also gained, adding 2.2%.Banks were higher as investors turned to riskier assets.
Lloyds Banking Group gained 4.5% after the Sunday Telegraph said the lender was looking to convert ฃ6.79 billion worth of preference shares into common equity in a further bid to shore up its finances.
Barclays, Royal Bank of Scotland, Standard Chartered and HSBC were between 0.6 and 2.2% higher.
Miners found strength from rising metals pr ices. Lonmin, reported by weekly newspaper the Observer to be a renewed takeover target for Xstrata, rose 5.9%,with the latter up 2.5% higher.
Vedanta Resources, Antofagasta, Rio Tinto and Kazakhmys climbed between 2 to 3.1%.
The oil price was in focus ahead of todays Opec meeting which is expected to maintain current output levels.
Royal Dutch Shell, BG Group, BP Tullow Oil and Cairn Energy added between 0.6 and 3.2%.
Among other gainers, British Air ways rose 1.8% following a press report it was considering a bid for Lufhansas UK airline BMI.
Thomas Cook Group and TUI Travel were 1.4 and 4.6% higher respectively. Banks holding insolvent German retailer Arcandors shares in Thomas Cook are expected to place the 43.9% stake in the market within days, sources close to the matter said on Monday.
A weekend agreement by G20 finance ministers and central bankers to keep economic stimulus measures in place for longer added to the positive sentiment.
Thomson Reuters was among a handful of fallers, losing 1.7%.
The firm wants to delist in London to simplify its capital structure and eliminate the persistent discount at which the London shares have traded to its North American listings.
Burberry, Investec, Segro and Rentokil are set to enter the FTSE 100 later this month after a quarterly rejig and to replace Thomson Reuters.
The euro firmed against the dollar Monday, supported by a better than expected gain in German industrial orders and satisfaction with a G20 decision to maintain economic stimulus measures.
The single European currency in late-day trade was at $1.4332 against $1.4290 late Friday in New York.
The dollar was meanwhile at 93.03 yen, up from 92.99 yen Friday.
The euro gains were sustained by news that German industrial orders had risen sharply in July in a boost for Europes biggest economy.
Industrial orders gained 3.5% on a monthly basis following a downwardly revised 3.8-percent r ise in June, another sign the economy was rebounding from its worst recession in six decades.
Owing to the fresh increase in orders,industrial production should increase over the entire third quarter, the government forecast.This bears out our view that the German economy should achieve strong growth in the second half of the year, Commerzbank analyst Simon Juncker said.
Germany, heavily dependent on exports, suffered mightily during the global economic downturn but has rebounded faster than expected. The economy, to the surprise of analysts and experts, returned to growth in the second quarter.
Currency traders also took hear t Monday from a decision over the weekend by finance ministers from the Group of 20 developed and developing nations to keep stimulus measures in place until a global economic revival was assured.G20 central bankers and finance ministers agreed that it was too early to begin withdrawing massive fiscal, monetary and financial support, said analyst Mitul Kotecha of Calyon.It is hardly surprising that officials are not discussing exit strategies yet in the wake of intensifying uncertainty about the pace and shape of global economic recovery Kotecha added.
BNP Paribas economists said in a note thatt he G20 has gone out of its way to reassure markets that the accommodative policy currently in place will not be removed until a recovery is secured.
NAB Capital analyst John Kyriakopoulos said that with an improved outlook for growth and no early unwinding of stimulative policies, this should support investor ri sk-appetite and hence global grow thsensitive currencies, such as the euro.
The dollar enjoyed a modest bounce against the yen in the wake of Fridays US non-farm payrolls data,which showed that the US economy shed fewer jobs than expected last month.
The US Labor Department on Friday reported that the unemployment rate climbed to 9.7% with 216,000 jobs lost in August from 9.4% and a revised 276,000 jobs lost in July.
Most analysts had expected 230,000 job losses and an unemployment rate of 9.5% in August.
In London on Monday, the euro was changing hands at $1.4332 against $1.4290 late on Friday, at 133.37 yen (132.92), ฃ0.8748 (ฃ0.8720) and 1.5188 Swiss francs (1.5161).
The dollar stood at 93.03 yen (92.99 yen) and 1.0593 Swiss francs (1.0600).
The pound was at $1.6389 ($1.6391).Gold powered through the $1,000 an ounce psychological barrier yesterday, carried by a wave of pent-up technical momentum and dollar weakness, with some analysts eyeing last years record high at $1,030.80.
Some investors were also seeing gold as a caveat to stock market bullishness as they fret about the result of central banks and governments pumping billions of dollars into banking systems to boost growth.
Spot gold rose as high as $1,007.45 an ounce, its highest since March 2008, when bullion touched a record high at $1,030.80 an ounce. It was trading at $1,003.20 an ounce by 0913 GMT versus $993.85 an ounce late in New York on Monday.
US gold futures for December delivery rose to $1,009.4 an ounce, before easing to $1,005.4 an ounce versus Fridays $996.70 an ounce.The dollar is weaker, but I would put this move mainly behind technical momentum. Everyone has been expecting this massive move from a technical perspective, said Walter de Wet, an analyst at Standard Bank.
But the sustainability of the precious metals rally above $1,000 an ounce, which also helped boost palladium and silver to 2009 highs, was in question.
UBS analyst John Reade said in a note to clients that gold options had moved sharply after breaking through $1,000.Yesterdays move in implied volatility suggests that the gold market is running short gamma at the moment and it is possible that a scramble for upside gold options could lead the spot gold price higher, he said.We are unconvinced that all the ingredients are in place for a sustained surge higher in gold, he added.
Spot gold has now made three attempts to rise and stay above $1,000, including yesterdays push. The market stayed above the key level for one day in February this year and three days in March 2008, when the record $1,030.80 was hit.
Despite gold hitting $1,000, it is far from an inflation-adjusted record, which analysts at GFMS have put as high as $2,079 an ounce.
Some analysts have said the higher gold pr ice reflects uncertainty across markets about how central banks will untangle themselves from fiscal stimulus aimed at reviving economic growth, as well as dollar weakness.We certainly also expect the dollar to weaken much more, said Standards De Wet. The dollar fell to its lowest in almost a year against its trade-weighted basket.
Investment flows took a break, with the worlds largest gold-backed exchange-traded fund, the SPDR Gold Trust, saying holdings stood at 1,077.63 tonnes as of Sept 7, unchanged from Friday.My view is that by the end of the year the gold price will be lower, probably down to around $950 an ounce, said David Moore, a commodities strategist at Commonwealth Bank of Australia.
In other metals, silver hit a 13-month high of $16.81 an ounce and was at $16.75 an ounce versus $16.29 an ounce.
Palladium touched $295 an ounce, its highest since September last year. It was last at $294.50 an ounce versus Mondays $291.50.
Platinum was at $1,270.50 an ounce versus $1,255 an ounce.
FRANKFURT 5,463.51 +79.08
The pan-European FTSEurofirst 300 index of top shares rose 1.4% to 975.90 points, just 0.3% away from an 11-month closing high.
The European benchmark index has risen more than 51% since it hit a lifetime low of March 9 as investor confidence about prospects of economic recovery have grown.
In Frankfurt, the DAX index ended at 5,463.51 points,up 79.08 or 1.47%. In Paris, the CAC-40 index closed at 3,652.83 points, up 54.07 or 1.50%.
The heavyweight financial sector also boosted the index.
Swiss Re rose 3.4% after saying reinsurance prices were rising overall and it was well positioned for the January 2010 renewals season, with a considerably strengthened capital base.
Other insurers to rise included Aegon, Aviva, AXA, and Legal & General, up between 2.3 and 3.5%.
Banks to gain included Barclays, Credit Suisse, HSBC and UniCredit, up between 1 and 2.4%.
Spains Telefonica rose 2.1% after the telecoms company said on Sunday it had reached a deal with China Unicom whereby each would buy $1 billion worth of the others shares as part of a strategic alliance.
The market got support after Group of 20 finance ministers and central bankers said they would not remove economic stimulus until the global recovery was well established.
Standard Life Investments advised investors to stay heavy in the UK as the market was supported by favourable valuations, but saidstay light in Europe ex-UK asthe region remains vulnerable to a continued slowdown in world trade growth and weaker earnings valuations.
Oil hovered around $68 a barrel in thin trade on Monday ahead of an Opec meeting this week which is widely expected to keep its official output unchanged.
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