Gains in healthcare stocks prop up European equities

Bareksa.com - European stock markets rose on Tuesday to claw back ground lost in previous sessions, as new signs of possible takeover activity pushed up major healthcare and pharmaceutical stocks.

The pan-European FTSEurofirst 300 index closed up 0.3 percent at 1,387.75 points, after falling in the last two sessions down from a 6-1/2 year high of 1,398.65 points reached earlier in June.

The euro zone's blue-chip Euro STOXX 50 index gained 0.4 percent to 3,275.33 points and Germany's DAX rose by the same margin to 9,920.32 points, having recently slipped from its June 10 record high of 10,033.74 points.

Healthcare stocks such as Novo Nordisk and its UK rival Shire added the most points to the FTSEurofirst 300.

Shire rose 3.5 percent after Reuters reported that the company had hired investment bank Citi as an adviser, expecting to receive takeover approaches following a wave of deals in the healthcare sector.

Sunrise Brokers' equity strategist Christopher Mellor backed healthcare stocks as his preferred equity sector for this month.

The prospect of high margins, improving earnings and possible merger and acquisition (M&A) activity made the sector an appealing one for investors, he said.

"There is more scope for M&A activity, in a sector that has historically been quite M&A-heavy," he said.

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Over the last two sessions, European stock markets had retreated from multi-year highs as violence in Iraq pushed up the price of oil and knocked back airline and travel stocks.

However, many traders have said new economic stimulus measures from the European Central Bank should ensure that any pullback will be relatively short-lived. The FTSEurofirst 300 remains up by around 5 percent since the start of 2014.

"While in reality, earnings growth will now probably be lower than we expected for the full year, this weak start to the year in terms of earnings should be offset by the measures announced by the ECB," said Andrew Arbuthnott, head of large-cap European equities at Pioneer Investments.

Andreas Clenow, hedge fund trader and principal at ACIES Asset Management, also said it was very risky to bet on an end to the equity market rally.

"We may see a pullback for a couple of days, but in my view, it's nothing. This is a very strong bull market, and betting against it is a bad idea," said Clenow.