* FTSEurofirst 300 up 1.6 pct, highest close since Jan. 12
* Upbeat econ data drive rally in energy, engineering stocks
* Fiat climbs 8 percent on industry consolidation plan
* For up-to-the-minute market news, click on []
By Peter Starck
FRANKFURT, May 4 (Reuters) - European stock markets rallied
on Monday, adding to April's record gains and led by energy and
industrial engineering shares on the back of economic data
suggesting that the recession might be moderating.
The FTSEurofirst 300 <> index of top European shares
ended up 1.6 percent at 842.70 points, its highest close since
Jan. 12. Activity was dampened by a public holiday in Britain.
"We identify a significant improvement in market sentiment
and increased risk appetite from investors," said Marfin
Analysis in Greece.
Shares in Fiat <FIA.MI> rose 8.1 percent after the Italian
carmaker launched a plan to swallow up U.S. General Motors'
<GM.N> European operations, notably German Opel, to create a
listed European automotive group.
"The spin-off of Fiat Auto to create a new global group
would have positive consequences on the stock price," said Banca
Akros analyst Gabriele Gambarova, who rates Fiat "buy".
Oil & gas <.SXEP> ranked among the top sectoral gainers on
Europe's benchmark index, which saw its biggest ever monthly
rise -- 13 percent -- in April.
Galp Energia <GALP.LS> rose 9.1 percent, Lundin Petroleum
<LUPE.ST> gained 6.1 percent, StatoilHydro <STL.L> added 5.4
percent and ENI <ENI.MI> closed 2.9 percent higher. Crude oil
prices <CLc1> rose 1.2 percent to amost $54 a barrel.
Shares in Frontline <FRO.OL>, the world's largest oil tanker
shipping company, rose more than 25 percent.
Manufacturing activity grew in China and India in April, and
declined at its slowest pace in six months in the euro zone,
raising hopes that the sharpest economic slump in six decades
may have bottomed out. U.S. data showed pending sales of
existing homes rose unexpectedly in March. []
"The April PMI report still points to a sharp contraction in
output but the decline appears to be slowing heading into the
second quarter," JPMorgan said in a note on the euro zone PMI.
"The worst of a severe recession may be over," it added.
The European Commission, however, forecast that the economy
of the 16-country euro currency zone would shrink 4.0 percent
this year and by 0.1 percent in 2010, despite what it called
some "positive signals" in recent days. []
Some equity strategists said the recent stock market rally,
which has seen the FTSEurofirst 300 index shoot up more than 30
percent from its March 9 low point, may soon grind to a halt.
"Even though the economic data could hardly be weaker, the
stock markets cling on almost without hesitation to the last few
weeks' upward trend," German bank NordLB said.
"We do not think that the data justify such a trend, despite
the fact that stock markets tend to be an early indicator of
actual economic developments, and are therefore rather sceptical
looking at near-term prospects (for equities)," NordLB said.
ECONOMIC RECOVERY HOPES
The DJ Stoxx industrial goods and services index <.SXNP>
added 3.2 percent, with Wartsila <WRT1V.HE> up 11 percent,
Konecranes <KCR1V.HE> up 8.8 percent, Sandvik <SAND.ST> up 8.4
percent, ABB <ABBN.VX> up 7.5 percent and Alstom <ALSO.PA> up
4.8 percent.
"Positive sentiment has the upper hand. Investor behaviour
is driven by hopes of economic recovery," Commerzbank said.
Shares in steelmaker ArcelorMittal <ISPA.AS> rose 12.5
percent, catching up with strong gains for basic resources
stocks in London on Friday, with traders also citing strong
appetite for the company's capital increase unveiled last week.
Financials remained in focus in the run-up to Thursday's
release of results from the U.S. government's stress test of the
country's 19 largest banks. []
U.S. bank shares rose -- the KBW Bank index <.BKX> was up
5.5 percent -- after analysts said the stress tests would show
most would need less new capital than previously feared.
In Europe, Bank of Ireland <BKIR.I> jumped 18 percent, Erste
Bank <ERST.VI> put on 9.7 percent, BNP Paribas <BNPP.PA> rose
3.9 percent and Danske Bank <DANSKE.CO> gained 3.1 percent.
The DJ Stoxx European banks index <.SX7P> reached its
highest close since Dec. 10. It has now risen 95 percent since
March 9, and Deutsche Bank strategists said the rally was
unlikely to prove sustainable.
"We see many reasons to be negative on Banks and therefore
we buy the 'db xtrackers Stoxx600 Banks short'," Deutsche said,
referring to an exchange-traded-fund (ETF), whose performance is
inverse to that of banks in Europe's top-600 index <>.
In what looked like a sector rotation in favour of cyclicals
out of defensives, health care stocks underperformed, falling
0.3 percent on the DJ Stoxx sector index <.SXDP>. UCB <UCB.BR>
lost 3.2 percent and Crucell <CRCL.AS> dropped 2.8 percent.
(Additional reporting by Christoph Steitz in Frankfurt and
Joanne Frearson in London; Editing by David Cowell)
