European stocks rise amid merger speculation despite Greek budget concerns; Wall Street closed

European stocks rise amid merger speculation

LONDON — European stock markets rose Monday as speculation of a pickup in corporate dealmaking kept investors interested on a day Wall Street was closed for the Martin Luther King public holiday and Greece’s budgetary woes continued to weigh on the euro.

The FTSE 100 index of leading British shares closed up 39.02 points, or 0.7 percent, at 5,494.39, while Germany’s DAX rose 42.58 points, or 0.7 percent, at 5,918.55. The CAC-40 in France ended 23.08 points, or 0.6 percent, higher at 3,977.46.

A lot of the interest in Europe centered on Britain’s International Power PLC and Gaz de France SA and whether weekend speculation that they were looking at some sort of tie-up would materialize.

However, International Power’s statement that merger talks had ended saw a massive reverse in the company’s fortunes and a share price that had been 8 percent higher in the day ended over 3 percent lower — making it the biggest faller on the FTSE 100.

British candy maker Cadbury PLC also remained in the spotlight amid speculation that its suitor Kraft Foods Inc. was preparing to sweeten its offer before a Tuesday deadline. Cadbury ended around 1.5 percent higher but investors remain skeptical that the current stand-off between the two companies can be ended.

“Some traders seem to feel that this has dragged on long enough, making any sort of deal unlikely,” said David Jones, chief market strategist at IG Index.

Even though talks between International Power and Gaz de France failed to yield anything, analysts said there are mounting expectations that the amount of mergers and acquisitions taking place will increase over the coming months as the global economy recovers from recession. One corollary of increased confidence is an increase in mergers and acquisitions.

When Wall Street returns on Tuesday, the focus will turn towards the next batch of fourth quarter corporate earnings — so far, earnings have been fairly mixed, with upside surprises from the likes of Intel Corp. offset by disappointments elsewhere, most notably Alcoa Inc.

Banks will be in the spotlight especially after U.S. stocks fell 1 percent on Friday — the Dow Jones industrial average suffered its worst day of the year so far — as JP Morgan Chase & Co. offered a cautious earnings guidance even though it reported a fairly strong set of results.

“We get Citigroup tomorrow which has less of the good bits of banking and more of the bad bits,” said Kit Juckes, chief economist at ECU Group.

A meeting of the 16 finance ministers of the countries that use the euro in Brussels later will be closely monitored in the currency markets as the main topic of debate will be the shaky state of Greece’s public finances.

Concern about Greece’s debts has been one of the reasons why the euro has floundered over the last month or so from 16-month highs above $1.50. Earlier it hit a ten-day low of $1.4336 before recovering slightly to $1.4380.

Greece’s problems have fueled concerns that the country may eventually have to be bailed out by its partners in the eurozone. Some observers are even speculating about a possible Greek exit from the single currency zone.

“With rising concerns about the workability of the Greek government’s stability and growth plan, the firm rejection from within the eurozone of the idea of a bailout, the rapidly rising cost of default insurance on Greek sovereign debt and concerns over deficits elsewhere in the region, the problems for the single currency are mounting rapidly,” said Neil Mellor, a currency strategist at Bank of New York Mellon.

“Given that these come at a time when the euro is trading significantly above its long term averages against a wide range of currencies — 23 percent against the dollar — after years of being used as the prime vehicle for reserve diversification, there is plenty of space for it to fall,” he added.

Earlier in Asia, Japan’s Nikkei 225 stock average ended 127.02 points, or 1.2 percent, lower at 10,855.08 while Hong Kong’s Hang Seng fell 194.15 points, or 0.9 percent, to 21,460.01. Markets in Singapore and Taiwan also lost ground.

Other markets fared better, with South Korea’s Kospi gaining 0.6 percent to 1,711.78 and Australia’s stock measure adding 0.2 percent and Shanghai’s index rising 0.4 percent.

Oil prices rose modestly, with benchmark crude for February delivery up 40 cents at $78.40. On Friday, the contract slid $1.39 to settle at $78. The price was down $4.75 for the week after declining for five straight days.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.