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European stocks notched up a third successive session of gains on Monday, helped by commodity shares that rose on higher crude prices and a mining sector take-over, and as investors bet on a US rate cut this week. The pan-European FTSEurofirst 300 index of top shares ended the day up 0.72 percent at 1,588.31 points, taking its gains for the year to around 7 percent.
Britain's top share index rose, led by commodities benefiting from M&A activity and an upbeat broker note and buoyed by expectations that the Federal Reserve will cut rates later in the week. Britain's FTSE 100 index closed up for a third consecutive session, ending 44.7 points or 0.67 percent higher at 6,706.0.
"It's safe to say that for the next 3-4 months, equities will consolidate until we learn whether we are going to have a recession or a soft landing in the United States," said Andrew Bell, European strategist at Rensburg Sheppards Investment Management.
"But we seem to be coming down on the bullish side of the available evidence as central banks reflate the economy." Crude prices hit a record $93.20 a barrel, lifting index heavyweight oil stocks. BP rose 0.8 percent, Shell rose 0.5 percent, and Total gained 1.1 percent. A $2.8 billion deal by miner Xstrata to buy Australian nickel producer Jubilee Mines, along with positive brokerage notes, lifted miners. Kazakhmys rose 3.5 percent, and Anglo American gained 3.2 percent.
Carmakers Renault rose 3.8 percent, tracking shares in Japanese affiliate Nissan, which gained after strong results, while rival Peugeot jumped 4.1 percent. Germany's Volkswagen rose 3.2 percent, buoyed by a clutch of brokerage target upgrades. Across Europe, Britain's FTSE and France's CAC gained 0.7 percent, while Germany's DAX rose 0.8 percent.
The US Federal Reserve is widely expected to cut rates by a quarter percentage point to 4.5 percent on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market's downturn.
A rate cut could have a tonic effect on stocks. European stocks fell 13 percent in one month from mid-July on fears that a crisis in US subprime mortgages and the credit market would poison the broader economy.
They hit a low for the year in mid-August and then started a recovery when the Fed cut first its emergency discount rate and then its main funds rate. Bell said that while he, along with most analysts, expected a 25 basis point cut, he would prefer a bigger move.
"My wish would be 50 basis points, which prevents confidence in the system from crumbling; they could put the fire out now and then mop up the liquidity in the spring," he said. The high oil price lifted shares in solar power equipment maker Renewable Energy Corp by 5.4 percent as alternative energy sources became consequently more attractive. Germany's Q-Cells and Solon jumped more than 7 percent, and SolarWorld rose 3 percent.
Stainless steel stocks gained after as an industry body asked the European Commission to levy punitive duties on imports of stainless steel cold-rolled flat products from some Asian countries. ThyssenKrupp rose 3.3 percent, and ArcelorMittal gained 3.2 percent.

Copyright Reuters, 2007

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