Europe clings to Ifo gains

LONDON, England (CNN) -- European markets ended mostly higher on Monday, as an upbeat German business survey provided new hope of recovery for the continent's biggest economy.

With U.S. markets closed for the Memorial Day holiday, the survey also provided some direction for European investors while attention also shifted to two European telecom giants -- Deutsche Telekom and Vodafone -- both of which are facing crucial financing issues.

London's FTSE 100 lost 0.6 percent to 5,136.3, while the CAC 40 blue chip index in Paris climbed 0.5 percent to 4,360.71 and Frankfurt's electronically traded Xetra Dax was up 0.9 percent to 4,941.74 in late trading (the German market was set to close at 1900 GMT).

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was flat, with the insurance and leisure sub-indices leading gain. Telecom and utility stocks were among the big decliners.

European markets notched up early gain after the Munich-based Ifo economic institute said its west German business climate index, based on a monthly survey of about 7,000 companies, rose a full point to 91.5 points in May, beating expectations. (more)

"The Ifo result is positive for equities as it points to a recovery in German economic activity during the second half of the year and Germany has recently been the region's laggard," Ken Wattret, chief eurozone economist at BNP Paribas, told Reuters.

"I expect the Ifo to show further gains over the next few months, driven by an improvement in the current conditions."

Deutsche Telekom (FDTE), Europe's biggest telecom operator by sales, was up 3.8 percent in Frankfurt trading after comments from chief executive Ron Sommer that the group plans to cut its workforce by around 22,000 by the end of 2004 through natural wastage.

The stock also got a boost from an article in the May 27 issue of influential financial magazine Barron's which said Deutsche Telekom shares might be a bargain for patient investors.

Meanwhile, Vodafone Group (VOD), Europe's biggest mobile phone operator, fell 4.9 percent -- after posting gains earlier in the session -- ahead of a crucial earnings report on Tuesday. The company is likely to write down the value of acquisitions. (more)

"From an operational perspective we need to see signs the company is coping well in this difficult environment, and if that is the case that could set the market up for a good day [on Tuesday]," David Thwaites, European equities strategist at BNP Paribas, told Reuters. "If not, then the opposite could happen."

France Telecom (PFTE) also lost ground ahead of its shareholder meeting scheduled for Tuesday. It closed down 3.2 percent.

In the auto sector, Italian group Fiat, the No. 6 carmaker fell 5.8 percent after reports that it had struck a deal with its creditor banks to provide new funding for the struggling industrial group. (more)

Among Europe's closely watched stocks, the world's biggest mobile phone company Nokia lost .0.5 percent and rival Ericsson fell 2.1 percent. Europe's second-largest chip maker Infineon Technologies (FIFX) was down 0.3 percent in late Frankfurt trading, while Siemens (FSIE), Germany's biggest engineering and electronics group, was up 1.3 percent.

French retailer Carrefour (PCA) rose 2.4 percent to 52.50 euros after Deutsche Bank upgraded it stock to "buy" from "market perform". The bank raised its price target of 60 euros for Carrefour's shares on expectations the company would improve its earnings growth.

Vivendi Universal (PEX), Europe's biggest media company, gained 3.1 percent amid continued speculation that it was considering selling a stake in its utility business to cut its debt.(more)

British cruise operator P&O Princess (POC) rose 0.9 percent after U.S.-based Carnival Corp., the world's biggest cruise operator, ruled out selling the Cunard line, which includes the QE2, as part of regulatory conditions for its 4.6 billion pound ($6.7 billion) bid for P&O Princess. (more)

In Amsterdam the AEX index rose 0.2 percent and Milan's MIB30 index gained 0.1 percent, while the SMI in Zurich added 0.4 percent.

In the U.S. on Friday, investors worried about a pullback in technology spending sent stocks lower as a week that began with terror warnings ended with big losses in Sun Microsystems and Applied Materials.

The Nasdaq composite index fell 36.14 points, or 2.1 percent, to 1,661.49, while the Dow Jones industrial average lost 111.82 points, or 1.1 percent, to 10.104.26.