European stocks add to gains, Ryanair tumbles

PARIS (Reuters) – European shares rose in early trade on Monday, adding to the previous session’s strong gains as merger and acquisition fever propelled basic resources stocks higher.

Shares in Ryanair tumbled 14% after the airline posted a sharper-than-expected fall in quarterly net profit and warned that high oil prices, an economic slowdown in the UK and weak sterling meant profits may fall up to 50% next year.

Societe Generale, the French bank hit by a trading scandal, dropped 3.9% as investors expected the company to announce a discounted rights issue later this week.

At 0913 GMT, the FTSEurofirst 300 index of top European shares was up 0.4% at 1,359.57 points. The index, which gained 1.8% on Friday, has lost about 10% since the start of 2008, hit by worries over the prospect of a U.S. recession.

But recent M&A-related news fuelled a tentative recovery in stock markets worldwide. Shares rose on Wall Street on Friday after Microsoft Corp unveiled a $44.6 bln bid for Yahoo Inc and eclipsed weak U.S. jobs data.

Anglo American gained 3.3% on Monday, Salzgitter rose 5.9%, and Antofagasta added 1.9%.

China teamed up with U.S. aluminium producer Alcoa to buy a $14 bln stake in Rio Tinto on Friday, threatening miner BHP Billiton’s efforts to take over Rio. Rio Tinto was down 1.6% and BHP Billiton up 0.1%.

“We might have reached a floor, but only in the very short term I think,” said Edmund Shing, strategist at BNP Paribas, in Paris.

“The bailout of the bond insurers will be the big question. If we get a deal for MBIA and Ambac to reinforce them so they don’t get downgraded, I think the market could go higher, if not we may be held hostage to macroeconomic news and we may be actually looking to get back lower again,” he said.

A group of large banks has joined together to find ways to shore up Ambac Financial Group Inc, a large bond insurer battered by the global credit crunch, two people briefed on the talks said on Friday.

Another group is looking at ways to rescue other bond insurers, one of the people said.

Bond insurers, which guarantee more than $2.4 trln of debt, are expected to suffer billions of dollars of losses after insuring repackaged subprime mortgages. They are looking to raise capital to protect their credit ratings.

Banking shares were mixed on Monday, with Royal Bank of Scotland up 1.2%, BBVA up 0.3%, and Fortis down 1% and UBS down 0.6%.

Around Europe, Germany‘s DAX index was up 0.7%, UK‘s FTSE 100 index down 0.1% and France‘s CAC 40 up 0.3%.

Inmobiliaria Colonial surged 12% after the Investment Corporation of Dubai (ICD) said the main two shareholders in the troubled Spanish property firm have agreed to sell if the Dubai fund launches a takeover bid.

Denmark‘s Vestas, the world’s biggest maker of wind turbines, gained 8.5% after it raised its full-year 2007 sales and profit outlook, saying development in the fourth quarter had been strong, sending its shares higher.