M&A powers Europe shares to strong close

By Sitaraman Shankar

LONDON, Feb 1 (Reuters) - European shares rose strongly on Friday as merger activity led by a stake sale in Rio Tinto (RIO.L: Quote, Profile, Research) helped mask the impact of more bad news on the U.S. economy in the shape of a weak jobs report.

The FTSEurofirst 300 index of top European shares ended up 1.83 percent at 1,353.91 points, with advancers outnumbering losers by 5 to 1.

Miners were the top weighted gainer on the benchmark, and the DJ Stoxx European basic resources index the top percentage gainer among sectors, rose nearly 7 percent.

Rio was the biggest winner in Europe, up 12.8 percent, after Chinese aluminium producer Chinalco said it had bought a stake in the company jointly with U.S. group Alcoa (AA.N: Quote, Profile, Research).

BHP Billiton (BLT.L: Quote, Profile, Research), a suitor for Rio, ended up nearly 10 percent on investor hopes that it would be blocked from a costly takeover. Vedanta (VED.L: Quote, Profile, Research) gained 9 percent and Antofagasta (ANTO.L: Quote, Profile, Research) 7.3 percent.

Shares also gained from a monster $44.6 billion offer by Microsoft (MSFT.O: Quote, Profile, Research) for Yahoo Inc (YHOO.O: Quote, Profile, Research). Banks were propped up by Societe Generale (SOGN.PA: Quote, Profile, Research), up 6 percent on a newspaper report that rival Credit Agricole (CAGR.PA: Quote, Profile, Research) had hired Lazard and its own investment bank, Calyon, to study a bid. Credit Agricole declined to comment.

The FTSEurofirst 300 index lost nearly 12 percent last month, its worst monthly fall in more than five years, as investors worried that the United States would slip into recession, and banks would continue to make hefty writedowns on investments linked to subprime, or risky U.S. mortgages.

Analysts said that the worsening economy was likely to be the main factor in stock markets in the months ahead.