European shares edge up, boosted by M&A

* FTSEurofirst 300 up 0.2 pct

* Rhodia jumps 48 pct after Solvay bid

* Time to buy volatility derivatives, Nomura says

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Brian Gorman

LONDON, April 4 (Reuters) – European shares edged up to a
three-week high on Monday, with telecoms heavyweight Vodafone
rising after a major disposal, though strategists said an
expected euro zone interest rate rise could cap further gains in
the months ahead.

At 1108 GMT the FTSEurofirst 300 (.FTEU3: Quote, Profile, Research) index of top
European shares was up 0.2 percent at 1,143.49 points, after
gaining 1.5 percent on Friday.

The index is up more than 7 percent from its 2011 low of
mid-February, as recovery hopes, boosted by strong U.S. labour
data, more than offset worries about Japan’s nuclear crisis and
hostilities in the Middle East.

Vodafone (VOD.L: Quote, Profile, Research) rose 0.9 percent after selling its 44
percent stake in France’s second-biggest mobile telecoms
operator SFR to Vivendi (VIV.PA: Quote, Profile, Research) for a total of 7.95 billion
euros ($11.3 billion). [ID:nLDE7330AP]

“M&A and fund flows into equity markets are providing
support to the asset class,” said Graham Secker, European equity
strategist at Morgan Stanley.

But he added that an expected hike in interest rates by the
European Central Bank on Thursday would be “a negative
development – that’s going to weigh on equities over the next
few months. Equities don’t tend to discount this news in
advance. And leading economic indicators are rolling over.”

Secker said Morgan Stanley was overweight equities but
added, “Over the next three to six months the market will go
sideways and there will be a bit of a rotation out of cyclicals
and into defensives.”

Chemical group Rhodia (RHA.PA: Quote, Profile, Research) soared 48 percent after
Solvay (SOLB.BR: Quote, Profile, Research) launched a 3.4 billion-euro agreed bid for its
French rival. Solvay rose 1.5 percent.

Miners were among the other gainers, as the price of copper
and other metals rose, on optimism about the outlook for demand.

Kazakhmys (KAZ.L: Quote, Profile, Research), Rio Tinto (RIO.L: Quote, Profile, Research) and Xstrata (XTA.L: Quote, Profile, Research)
rose between 1.2 and 1.5 percent.

Minmetals Resources (1208.HK: Quote, Profile, Research), China’s biggest metals
trading firm, offered $6.5 billion to buy Equinox Minerals
(EQN.AX: Quote, Profile, Research), chasing the target company’s copper assets in Zambia
and Saudi Arabia. China, which accounts for 40 percent of world
copper demand, is on a buying spree for miners as prices for the
metal hover near record highs. [ID:nL3E7F30DI]

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Interactive graphic on M&A: http://r.reuters.com/kyb46q

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DIXONS FALLS

On the downside, Dixons (DXNS.L: Quote, Profile, Research), Britain’s biggest 1
electricals retailer, fell a further 8.9 percent, extending
falls last week when it issued a profit warning and gloomy
forecast for 2011-12.

However, despite a brisk three-week rally, European stock
valuation levels remain comparatively low, with Europe’s broad
STOXX 600 index (.STOXX: Quote, Profile, Research) pricing forecast earnings at 10.5
times, well below its 10-year average price-earnings ratio of
13.6.

Investors seeking protection for their equity portfolios
should start buying volatility derivatives again as the main
volatility indexes (.V1XI: Quote, Profile, Research) (.V2TX: Quote, Profile, Research) (.VIX: Quote, Profile, Research) fall back toward their
long-term averages following a recent spike triggered by
violence in Libya and Japan’s nuclear crisis, said Frederic
Cezard, executive director at Nomura in Paris.

“We’re back to good entry levels. The market is getting used
to the negative newsflow coming from the Fukushima nuclear plant
… At these levels we see the return of inflows into volatility
derivatives,” he said.

($1=.7031 euros)
(Additional reporting by Blaise Robinson; Editing by Greg
Mahlich)

European shares edge up, boosted by M&A