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Stocks Rise in Europe on Takeover Speculation; Pound Advances

Jan. 18 (Bloomberg) — Stocks in Europe rose on speculation mergers and acquisitions will rebound this year as the global economic recovery gathers pace. The pound strengthened after a survey showed U.K. house prices increased in January.

The Dow Jones Stoxx 600 Index rebounded from its first weekly loss in a month to rise 0.7 percent as of 11:32 a.m. in London. The pound strengthened to a four-month high against the common European currency. Greece’s Athens Stock Exchange General Index sank 1.3 percent as European finance ministers scrutinized plans to curb the nation’s budget deficit. U.S. markets are closed today for the Martin Luther King Jr. holiday.

“M&A is a theme we’ve entered into our portfolios,” said Louis de Fels, a Paris-based money manager at Raymond James Asset Management International, which oversees $29 billion. “We favor stocks that will acquire sales through takeovers. This theme will develop in Europe and these stocks will continue to perform.”

Global mergers and acquisitions are poised for a “modest” rebound this year after companies cut debt and analysts trimmed earnings estimates, accounting firm KPMG said today. International Monetary Fund Managing Director Dominique Strauss- Kahn said in Tokyo it’s too early for policy makers to withdraw stimulus packages that are resuscitating global growth.

International Power Plc jumped 4.5 percent in London to its highest level since October 2008. GDF Suez SA is considering a tie-up with the biggest U.K.-based electricity producer, people familiar with the plan said. Cadbury Plc rose 1.5 percent on speculation Kraft Foods Inc. will lift its bid for the chocolate maker. Cie. Financiere Richemont SA, the world’s largest jewelry maker, added 1.9 percent in Zurich after sales climbed.

Asian Stocks

The MSCI Asia Pacific Index dropped 0.4 percent, snapping four weeks of gains, after JPMorgan Chase & Co. reported a loss in retail banking after Asian markets closed on Friday and U.S. consumer confidence trailed forecasts. Nissan Motor Co., which gets about 35 percent of its sales from North America, slumped 2.6 percent in Tokyo. China Mobile Ltd. declined 2.5 percent in Hong Kong, leading declines by telecommunications stocks.

The MSCI Emerging-Markets Index fell to a two week-low, declining less than 0.1 percent. Russia’s ruble weakened 0.2 percent against the dollar.

Greek stocks declined, with the benchmark ASE Index sliding 1.9 percent, the biggest drop among world stock indexes. Alpha Bank SA, the nation’s third-largest bank, slipped 4.1 percent in Athens. Hellenic Telecommunications Organization SA, Greece’s biggest telephone-services provider, slid 2.4 percent.

Greek Deficit

Greece is struggling to cut a 2009 budget deficit that may reach 12.7 percent of gross domestic product, the highest in the euro region. Moody’s Investors Service said on Jan. 13 the Greek and Portuguese economies may face a “slow death” as they dedicate a higher proportion of their wealth to paying off debt.

The euro fell to near its lowest level in a week against the dollar, losing as much as 0.4 percent to $1.4335, almost matching its weakest level since Jan. 8.

“If the EU decides to bail out Greece, either via the European Central Bank or direct by other euro members, it would deliver a bad signal to other euro-zone countries,” Jennifer Underwood, a strategist at Europe Arab Bank Plc in London, wrote in a note. “Should no bailout be forthcoming and there is a Greek sovereign default, not only would the euro come under some heavy pressure on the foreign-exchange markets, the weaker euro members would come under attack.”

Spreads Widen

The yield premium, or spread, investors demand to hold Greek 10-year bonds rather than those of Germany, Europe’s benchmark borrower, narrowed 5 basis points to 268 basis points, after earlier jumping to 278 basis points, within 1 basis point of the widest level since March. The corresponding spread for Portuguese 10-year notes widened 2 basis points to 94. The gap for Spanish debt increased by 3 basis points to 73.

The pound advanced against all of its 16 most-traded counterparts, and traded at less than 88 pence per euro for the first time since Sept. 15, after a survey showed U.K. house prices increased in January.

Crude oil for February delivery rose 51 cents to $78.51 a barrel in electronic trading on the New York Mercantile Exchange. Platinum for immediate delivery climbed 1.4 percent to $1,622.50 an ounce after earlier trading at its highest intraday level since August 2008. Palladium added 0.6 percent to $457.65 an ounce.

The extra yield investors demand to hold European investment-grade corporate bonds rather than government debt widened to 152 basis points, from 151 basis points, near the lowest level since February 2008, according to Bank of America Merrill Lynch indexes.