European shares rallied in late trading to close higher on Monday, reversing earlier losses, after U.S. equity markets posted gains led by technology stocks, according to Reuters. "America is providing support," said one trader in Frankfurt, commenting on the turnaround late in the European afternoon. U.S. stocks gained as an upgrade of Intel Corp. and a partnership between Internet companies eBay Inc. and Google Inc. boosted the tech sector, with the Nasdaq index up 0.7 percent at the end of the European trading day. In Europe, German computer software maker SAP climbed 1.5 percent and Dutch chipmaker ASML put on 0.9 percent, pushing the European technology index 1.2 percent higher for the day's top sectoral performance. The FTSEurofirst 300 index of top European shares closed 0.4 percent higher at 1,365.11 points, but volumes were thin with the London market closed for a public holiday. Oil stocks dipped as crude prices fell on news that Hurricane Ernesto, the first of the season in the Gulf of Mexico, had been downgraded to a tropical storm and that it was threatening the Florida Keys rather than U.S. oil facilities on the Gulf coast. Royal Dutch Shell fell 0.5 percent. Bank shares remained in focus following weekend news that the boards of Italy's Banca Intesa and Sanpaolo IMI had approved plans to merge, creating the top player in Italy's retail banking market. Banca Intesa fell 1.6 percent and Sanpaolo IMI dropped 1.4 percent -- both having gained over 12 percent last week as talk of their tie-up emerged -- but analysts were upbeat on prospects for the new group, which will have a market worth close to $71 billion, making it one of Europe's top 10 banks. "We regard the SPI/Intesa deal positive, both strategically and financially," Sal Oppenheim said in a note. "Seeing further upside, we are sticking to our 'Buy' recommendations for both stocks," WestLB said. In other corporate action, Anglo-Dutch consumer products group Unilever NV/Plc agreed to sell the bulk of its frozen foods business to private equity group Permira Funds for 1.725 billion euros ($2.2 billion). Analyst Paul Hofman at brokerage Van Lanschot, who has a "buy" rating on the stock, noted: "Today's agreed selling price of 1.725 billion euros is at the higher end of estimates." Analysts urged the company to use the proceeds to shore up its business or return cash to shareholders, rather than make new acquisitions. Unilever shares gained 0.9 percent in Amsterdam. Deutsche Telekom eased 0.2 percent on a media report saying its mobile phone arm T-Mobile would lower its call charges. Traders cited worries that such a move would dent the German group's profit margins. "We believe that Deutsche Telekom's new strategy to 'Defend Market Shares' is unlikely to succeed, making another revision likely for its 2007 guidance," Kepler Equities said in a note. A stronger euro, helped by another reminder over the weekend that the European Central Bank is ready to act against any sign of resurgent inflation, weighed on European exporters, such as carmakers. "The recent appreciation of the European currency should move the topic of currency burdens back into focus due to the still low hedge rate for 2007," HVB said in a research note, referring to BMW, which it downgraded to "neutral" from "outperform". Shares in BMW eased 0.2 percent. A European Central Bank decision on interest rates will dominate the investment agenda on Thursday. Economists do not expect a change in rates but will look for hints on a rise in October, which many market players feel could hurt the euro zone economy. Investors will also examine U.S. reports on consumer confidence data, consumer sentiment and nonfarm payrolls to see if the United States is heading for a gradual economic slowdown or a full-fledged recession, especially after weaker home sales last week. "The Fed's wait-and-see position and a general sentiment dominated by the prospect for a U.S. economic slowdown are likely to continue weighing on the dollar," said CM-CIC economist Valerie Plagnol.
