European equities ended at a fresh 5½-year high on Thursday, swept along by broad advances across the banking, oil and mining sectors.

The FTSE Eurofirst 300 rose 9.19 points, or 0.6 per cent, to 1,480.76.

Clive McDonnell, chief european strategist at Standard & Poor’s, said European mergers and acquisitions activity in 2007 could exceed the $1,500bn expected for this year as the cycle had not yet peaked.

In Merrill Lynch’s 2007 strategy outlook, Karen Olney said European equities remained relatively cheap compared to bonds and to other regions.

“European companies are also in very good financial health, with gearing forecast to fall to 39 per cent next year,” said Ms Olney. “Yes, margins are at (cyclical) highs but we still expect profits to carry on growing at their long-term average of 7 per cent.”

Nestle rose 1.5 per cent to SFr436 after the world’s largest food group agreed to buy the medical nutrition business of Novartis for $2.5bn.

Analysts said the deal did not look cheap but it promoted Nestle to second position behind Numico in the fast growing business of providing specialist food for patients.

Novartis added 1.8 per cent at SFr71.35 while Numico gained 2.9 per cent to €40.13.

Ahold gained 3.4 per cent at €8.16 on talk of a €9.50 a share bid for the Dutch retailer from KKR, the private equity group. The cost of insuring Ahgold’s debt surged in the credit derivatives market on Thursday. Fernand de Boer of Petercam said Ahold’s recent strategic review had bought time for management but activist shareholders still wanted a break-up or takeover.

The $8.7bn takeover of Australia’s Qantas - a record for the airline sector - raised hopes for further consolidation among European operators with Deutsche Lufthansa up 1.3 per cent to €20.87, SAS 1.4 per cent higher at SKr108.00 and Iberia 1.1 per cent stronger at €2.81.

Norsk Hydro rose 3.8 per cent to NKr155 after Goldman Sachs upgraded Norway’s oil, gas and industrial metals group from “neutral” to “buy”. Goldman cited the company’s capacity to raise production more rapidly than the sector, attractive valuation and a recovery in aluminium prices as three reasons to buy.

Novo Nordisk increased 2.5 per cent to DKr468 after Citigroup upgraded the Danish healthcare group from “hold” to “buy” and raised its price target from DKr445 to DKr525.

“The global diabetes population is set to almost double by 2030 (to about 336m)” said Peter Verdult of Citigroup. “While the competitive landscape will intensify, Novo is well-positioned to capture its share of the growth.”

Citigroup said Novo’s valuation did not look stretched given the increases expected for earnings and dividends and the growth potential from liraglutide, its anti-obesity drug, was not priced in.

Bid rumours continued to surround ABN Amro, up 1.4 per cent to €24.35, amid continued speculation about a bid from Dutch rival ING, 2.2 per cent higher at €33.90.

Techem firmed 0.1 per cent at €56.55 as the German energy and water metering company continued to trade above the €55 a share bid from Australia’s Macquarie Bank on hopes that rival bider BC Partners will return with an improvment on its previous €52 a share offer.

Fresenius Medical Care fell 2.7 per cent to €105.18 after Goldman cut its earnings forecast for the the dialysis provider for next year by 11 per cent, due in part to weakness anticipated for the dollar.

However, Goldman also reiterated its “buy” recommendation and €182 price target, saying consensus earnings forecasts would rise towards its numbers for next year.

EdF relinquished some of its recent gains. The stock has risen some 15 per cent since the start of November on hopes that French electricity prices could rise towards European norms following comments from the European Commission that more legal pressure was needed to force member states to integrate their energy markets.

Separately, EdF announced the creation of a new €300m carbon fund to diversify its sourcing of CO2 emission allowances. EdF fell 1.5 per cent to €54.70.

Porsche, the German sports car maker, gained 2 per cent to €955.00 after HVB raised its price target from €995 to €1,104 and reiterated a “buy” rating, while rival Volkswagen dipped 0.2 per cent at €84.00.

Porsche holds a 27.4 per cent stake in VW which is protected by a 50-year old German law which caps voting rights in the company at 20 per cent. A blocking stake is also held by the German state of Lower Saxony

HVB said it believed a final ruling would come in the first half of 2007 but noted that if the law was over-turned, it would reduce the likelyhood of a full takeover from Porsche as it could effectively control VW with a 30 per cent stake.

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