Utilities Boost European Shares

European shares closed at their strongest levels in about two weeks Monday as takeover talk fueled a rally in utilities such as Spain’s Endesa and Britain’s Scottish Power.

Endesa rallied nearly 3% after a source familiar with the situation said Spain’s Gas Natural would attempt a takeover of the country’s leading utility. Shares in Endesa and Gas Natural were suspended in the session.

Scottish Power was among the biggest gainers in the sector and rose 4%, stoked by a weekend newspaper report that German utility E.ON had hired an investment bank to advise it on a potential bid for the firm.

The pan-European FTSEurofirst index of 300 blue chips closed 0.6% higher at 1,190.8 points, just below the 1,194.4 reached Aug. 22.

Trading was light with the Labor Day holiday in the U.S. limiting market participation.

Around Europe, London’s FTSE 100 index was 0.2% higher and Paris’ CAC 40 rose 0.6%.

Frankfurt’s DAX added 1.5%, supported by strength in auto shares as Volkswagen rallied 3% after announcing job cuts and as data showed German car registrations rose for the fifth consecutive month in August.

Persistent bid talk also boosted British bank Lloyds TSB, which rose nearly 3%.

Investors elsewhere remained cautious as they tried to assess the effect of Hurricane Katrina on the world’s biggest economy.

The scale of the destruction caused by Katrina has already led some economists to trim their U.S. growth forecasts and markets are growing more confident that U.S. interest rate rises are coming to an end.

Valerie Plagnol, chief economist at French broker CM-CIC Securities, said the Federal Reserve might leave interest rates unchanged at its Sept. 20 meeting.

“But they would send an unambiguous message that this is just a pause, not necessarily the end of the tightening cycle, that the economy is still strong and that they are merely pausing to assess the full impact of Katrina on the economy,” Plagnol said.

Julius Baer fell 3.7% after the largest of Switzerland’s mid-sized listed banks said it was buying three banks from rival UBS in a 5.6-billion Swiss franc ($4.6 billion) deal.

Traders had speculated on Friday that Baer would be acquired and its stock had rallied more than 8%.

Japanese stocks rose to a four-year high Monday on positive data showing an increase in capital spending, but most other Asian markets fell.

Tokyo’s Nikkei 225 index gained 34.88 points, or 0.28%, to close at 12,634.88, marking its highest close since July 3, 2001.

Steel stocks such as Nippon Steel Corp. and Sumitomo Metal Industries gained on new data showing that Japan’s capital spending increased 7.3% in the April-June quarter.

Stocks with close ties to the domestic economy, such as construction company Taisei Corp. and Mitsubishi Tokyo Financial Group Inc., also gained.

In Hong Kong, stocks ended flat, with gains in property stocks ahead of a land auction later this month offsetting losses in export-focused shoemaker Yue Yuen (Industrial) Holdings Ltd.

The blue-chip Hang Seng index rose 5.94 points, or 0.04%, to 15,227.83.

In Sydney, Australian shares lost ground. The benchmark S&P;/ASX 200 index fell 18.3 points, or 0.4%, to 4,455.4.

China’s shares ended higher for a fourth straight session. The benchmark Shanghai composite index ended up 0.6% at 1,196.22.

Reuters and Associated Press were used in compiling this report.