Aviva helps lift Europe stocks
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LONDON, England (Reuters) -- Gains in top UK insurer Aviva and defensive tobacco, food and beverage groups pushed European shares higher on Wednesday as some investors play safe amid concerns about valuations elsewhere in the market.
Takeover talk still gripped telecoms, sending French conglomerate Vivendi Universal up four percent on fresh talk that Britain's Vodafone might bid for the group to get control of Vivendi's SFR mobile unit.
Dutch telecom firm KPN gained 1.7 percent on a report it was in merger talks with France Telecom, which the French firm denied.
Meanwhile, Aviva rallied 3.4 percent to its best level since December 2002 in roughly twice the daily average volume after unveiling strong profit growth, as expected, and with a robust outlook and dividend increase.
The euro's prolonged rally against the greenback to record highs has become a worry for European companies that export.
On Wednesday, the world's number three brewer, Heineken, rose 3.7 percent after it reported flat 2003 profits in line with expectations but warned investors the weak dollar would take a big bite out of 2004 profits.
The euro's strength hurt exports for Italy, which reported its trade deficit with countries outside the European Union hit the largest level in over five years in January, and German Chancellor Gerhard Schroeder said the European Central Bank should consider a rate cut to dampen the euro.
A late session rally in the dollar on a report suggesting the ECB may cut euro zone interest rates in March helped sentiment in shares.
The FTSE Eurotop 300 index ended up 0.5 percent at 1,007.61 points, only 10 points short of last week's 19-month high close. Advancing and declining issues were roughly matched with volume steady. The DJ Euro Stoxx 50 index gained 0.2 percent to 2,872.48 points.
French-Spanish Altadis bucked the tobacco sector's rally to fall three percent after it posted an 11 percent rise in core profit, but disappointed investors with its outlook.
Strategists said gains in defensives like tobacco were a sign that investors were beginning to diversify marginally from the market's top industry gainers like tech, telecoms and media, though all three advanced on Wednesday too.
There was no real consensus among investors on whether to make a wholesale switch to more defensive sectors yet.
"We are on the cusp on a potential switch, but the further you step back from markets the more bullish you could be as with Greenspan today," said Michael O'Sullivan, a strategist at State Street Global Advisors.
"The evidence is not strong enough yet to make a very decisive call that investors have completely flipped from the growth stocks," he added.
"People are justifiably worried about valuations in some sectors and we are at a point where we are passing through fair value now," O'Sullivan said.
Federal Reserve Chairman Alan Greenspan told the House Budget Committee in Congress that the U.S. economy is off to a strong start in 2004 and prospects for sustained growth look good.
The central banker said low inflation was expected to continue for a while, signaling that U.S. interest rates were likely to remain at their low levels for now.
The banking sector was a sore point, with Britain's Barclays shedding two percent as it went ex-dividend, while domestic rival HBOS fell 0.9 percent despite results that came near the top of expectations.
French heavy engineering firm Alstom and Spanish peer CAF jumped after Spanish state railway company Renfe said it had awarded contracts valued at 1.4 billion euros ($1.76 billion) to consortia including Alstom and CAF.
As bourses in Europe shut, the Dow Jones industrial average was up 0.2 percent at 10,585 points, while the tech-studded Nasdaq Composite gained 0.3 percent to 2,010 points.
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