Paris - European stocks' week-long rally paused on Tuesday, with a 40 percent surge in Nokia after Microsoft agreed to buy the Finnish firm's phone business offset by brewing worries over Syria.
Israel tested a US-backed missile system in the Mediterranean on Tuesday but did not announce the launch in advance, prompting a disclosure by Russia that kept financial markets on edge.
At 17:05 SA time, the FTSEurofirst 300 index of top European shares was down 0.03 percent at 1,216.51 points after hitting a one-week high earlier, with the STOXX Europe 600 tech sector index surging 2.9 percent.
Alcatel-Lucent jumped 9.1 percent and Ericsson was up 6.4 percent.
Nokia, once the world's dominant cellphone maker, said it will be selling its handset business for 5.44 billion euros to Microsoft.
The news sparked a massive short squeeze rally on Nokia's shares - one of the most shorted stocks in Europe with 12 percent of shares out on loan - as hedge funds with negative bets on the stock were caught off-guard by the deal and scrambled to buy the shares back and close out loss-making positions.
Hobart Capital director Justin Haque said the deal and the ensuing spike in Nokia's share price would hammer hedge funds.
“It's going to be a long/short body bag job,” he said.
The Nokia deal followed Verizon Communications' move on Monday to buy Vodafone out of their US wireless business for $130 billion, fuelling expectations of an M&A revival that could support the market in the coming months.
“We are in an environment of growing merger fantasy for sure as economic conditions are improving, companies are cash-rich and interest rates are very low,” Christian Stocker, equity strategist at UniCredit in Munich, said.
“I see more mega deals taking place in the fourth quarter.”
The FTSEurofirst 300 has gained 2.2 percent since a low last Wednesday, gains that were fuelled by M&A activity as well as by worldwide factory data showing the global economic recovery was on track.
On Tuesday, the Institute for Supply Management said its index of US national factory activity rose to 55.7 in August from 55.4 the prior month, easily beating expectations for 54.
“Things are improving, especially in Europe, and the 'great rotation' out of bonds and into equities is under way. For long-term investors, this is an amazing opportunity to get exposure to stocks,” said Eric Galiegue, head of Valquant, a Paris-based financial research firm. - Reuters