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European shares pull back, oil rally limits losses

European shares

European shares fell on Monday after a rally last week, as weaker drug makers more than offset gains by oil stocks to near 17-month highs.

Shares in Swiss pharmaceutical company Lonza fell 6.9 per cent after it said it was in advanced talks to buy U.S. drugs capsule maker Capsugel. Earlier, sources told Reuters the deal could be worth more than $5 billion (£3.97 billion).

Baader Bank analyst Laura Lopez Pineda said the deal made strategic sense, but worries about a potential capital increase to finance it may weigh on the shares.

Lonza’s decline was the biggest in Europe and helped to drag Europe’s STOXX Healthcare index down 1 per cent.

Top losers included precious metal miner Polymetal, which fell 4.6 per cent as gold prices were dragged down by expectations that a possible U.S. rate hike this week would curb demand for the safe-haven asset.

The STOXX Europe 600 fell 0.4 per cent after hitting its highest level in around 11 months in the previous session. The index remains down more than 3 per cent so far this year.

But losses in the broader market were limited by a rally in crude oil. Crude prices climbed to their highest since mid-2015 after the Organisation of Petroleum Exporting Countries and non-OPEC producers reached their first deal since 2001 to jointly reduce output.

“Make no mistake about it – this historic agreement is a game changer,” FOREX.com analyst Fawad Razaqzada said. “Although the crude oil rally has already started at the end of last month when the OPEC first announced the deal, I think there is plenty of fuel left in this rally.”

The STOXX Oil & Gas index surged more than 2 per cent to its highest level since July 2015. Oil stocks such as Tullow Oil, Petrofac and Eni were among the top STOXX gainers, rising 3.5 to 9.4 per cent.

Italy’s FTSE MIB rose 1.1 per cent, outperforming the rest of Europe thanks to gains among its banks and after Foreign Minister Paolo Gentiloni was tasked to form a new government.

Monte dei Paschi rose more than 7 per cent. The ailing bank said it was pressing ahead with a plan to raise 5 billion euros (£4.21 billion) on the market this year, despite political uncertainty.

UniCredit, the country’s biggest bank, rose 3.5 per cent after a deal to sell asset manager Pioneer to France’s Amundi for 3.5 billion euros (£2.95 billion). Amundi shares rose over 4 per cent to a record high.

Paul

The author Paul