European equities inched higher in cautious trade on Monday, with investors buying defensive shares such as pharmaceuticals and telecoms ahead of a meeting of finance ministers to increase the euro zone's rescue fund.
The European Commission and the European Central Bank called last week for the region to boost the effective capacity of the European Financial Stability Facility, but analysts said there were concerns the officials might not easily agree on the issue.
Senior European sources said the sense of urgency in Berlin for boosting the fund had diminished after successful bond auctions last week in Spain and Portugal, countries seen most at risk of a bailout after rescues of Greece and Ireland last year.
Germany is pushing for broader anti-crisis measures to be agreed at an EU summit in March.
By noon, the FTSEurofirst 300 index of top European shares was 0.1% higher at 1,157.18 points, after rising to 1,159.85 earlier in the session.
Shares seen as defensive plays rose, with the STOXX Europe 600 Healthcare index up 1% and the European telecom index gaining 0.7%. Vodafone rose 1.7%, while Mobistar was up 1.3%.
"Generally there is very little newsflow, so all eyes are on the euro zone meeting. Policymakers have a tendency to over-promise and that might be the risk now," said Graham Bishop, equity strategist at RBS.
He said that in the short term, investors were concerned that policymakers might disappoint in announcing something definitive, but the bigger picture was still positive and factors such as low valuations were expected to help equities.
Banks slipped on lingering concerns about the euro zone credit situation. The STOXX Europe 600 banking index fell 0.8%, while Allied Irish Banks and Bankinter fell 5% and 2.6%, respectively.
Across Europe, Britain's FTSE 100 was flat, Germany's DAX fell 0.1% and France's CAC 40 was down 0.2%. Spain's IBEX dropped 1%, while Italy's FTSE MIB fell 0.6%.
BID BOOSTS
Mergers and acquisitions news provided some support to the market. British engineering firm Smiths Group surged 8% after it rejected a 2.45 bln pounds ($3.9 bln) bid approach for its medical services unit.
"We believe the rejection of the bid strongly suggests Smiths management are confident in achieving a higher value for the business," Credit Suisse said in a note.
Artificial knee and hip maker Smith & Nephew rose 3.9%, boosted by a weekend press report Johnson & Johnson was considering a formal offer worth at least 800 pence a share for the company.
BP gained 1.5% after Russia's state-controlled Rosneft agreed to a share swap in a deal that gives the UK company access to areas of the Arctic previously reserved for Russian oil companies.
"This is a unique opportunity for BP to gain access to a prospective new frontier, where direct access as a non-Russian company would not have been possible," Goldman Sachs said in a note.
