European equities rally amid mixed corporate performances

European stock• Pan-European FTSEurofirst 300 index up by 0.6%
• Healthcare, utilities’ shares lead gainers

European shares bounced back from one month lows on Monday, led higher by gains in defensive stocks, but telecoms fell after talks between Orange and Bouygues on creating a dominant French operator collapsed.

Shares in French group Bouygues slume’sd more than 15 per cent to below 30 euros and were on course for their worst day in 17 years.

The STOXX Europe 600 Telecommunications index was down 1.2 per cent at one-month lows following the failure late on Friday of the proposed 10 billion euro cash-and-share deal.

Orange was down 6.4 per cent. Other French telecommunications firms also dropped sharply, with Iliad, SFR and Altice all down by 13 and 17 per cent respectively.

The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecoms groups to three from four in France and prop up profits, which have been depressed since the arrival of low-cost operator Iliad.

Berenberg downgraded Bouygues to “sell” and cut its target price for the stock to 30 euros from 40 euros.

“We believe that this was one of the last chances for consolidation within the French telecoms market. France will remain a competitive four-player market, with a high capex burden as the market moves to fibre,” Berenberg analysts said.

Choppy market conditions prompted investors to buy defensive stocks, with the European healthcare index gaining 2.1 per cent and the utilities index up 0.7 per cent.

German utility RWE rose three per cent, helped by an upgrade by Societe Generale to “buy” from “hold”.

The pan-European FTSEurofirst 300 index was up 0.6 per cent by 1426 GMT after falling 1.5 per cent to a one-month low on Friday. The index is down about seven per cent this year.

However, a Reuters poll predicted on Friday that European shares will rise 8 percent from present levels to the end of 2016, with the European Central Bank’s supportive monetary policy and the region’s improving economic outlook seen helping riskier assets.

The poll also showed that Britain’s benchmark equity index will not make much, if any, progress for the rest of 2016, due to uncertainty over the country’s vote on European Union membership and fears of a global slowdown.

Italy’s FTSE MIB fell 0.6 per cent, dragged down by weaker banking stocks including the country’s largest lenders UniCredit and Intesa Sanpaolo which were both downgraded by Mediobanca in Europe-wide sector a note.

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