By Sarah Turner
European markets advanced on Monday, led by a rise in construction stocks after Lafarge announced an €8.8 billion deal and as investors digested an update from Swiss bank UBS (NYS:UBS) .
The pan-European Dow Jones Stoxx 600 index rose 0.6% at 375.06, building on strong gains made Friday.
Shares in French building-materials supplier Lafarge rose 13.1% after the firm said it has agreed to buy Orascom Cement for €8.8 billion ($12.9 billion). Lafarge said it expects the deal to add to earnings immediately.
Other construction-sector gainers included Bouygues, up 2.6%, and Saint Gobain, up 2.3%.
Of national indexes, the German DAX 30 index topped the 8,000 mark for the first time since the start of November, rising 0.5% at 8,033.36.
France's CAC-40 index advanced 0.6% at 5,750.92, while the U.K.'s FTSE 100 index closed up 0.2% at 6,565.40.
U.S. stocks also gained early Monday.
"Investors are keeping their powder dry ahead of the FOMC rate decision," said Peter Dixon, strategist at Commerzbank, saying that he expects fairly limited price action over the next couple of days.
Still, he noted that on the whole, equity markets are a bit less pessimistic than a few weeks ago. "Equities have picked up a bit in the last few weeks, the fixed income market has weakened a bit, carry trades are creeping back on the agenda," noted Mr. Dixon. "There's an indication that much of the bad news has been priced in."
Shares in Swiss bank UBS abandoned early losses to gain nearly 2% as investors started to consider the wider implications of an update from the firm.
The Swiss bank said Monday it will post a loss for the fourth quarter and may post a loss for the year as its writes down its U.S. subprime holdings by a further $10 billion. It also outlined moves to shore up its capital position.
Analysts at Bear Stearns welcomed the attempt to take a single large write-off rather than provisioning against losses as and when required.
"We welcome this change of heart," they said, adding that the net new money received by UBS in October and November was very positive at 30 billion Swiss francs, compared to 17 billion francs in the same period last year.
"The action today will ensure that it protects its pre-eminent position as market leader in global wealth management," the broker added.
Still, Commerzbank's Mr. Dixon said: "[UBS] couldn't have picked a better day to put bad news in the market. Equity market investors are not in dumping mode. They are sitting tight and getting through today and tomorrow."
Other banks updating on exposure to the current credit market turmoil included French bank Societe Generale.
The firm's shares rose 1.2% in Paris. It'll take the assets of its Pace structured investment vehicle onto its balance sheet due to credit market turmoil. The vehicle had assets of $4.3 billion at Nov. 30.
Away from banks and shares in consumer electronics giant Philips rose 3.6% as investors took in comments from two of the firm's shareholders.
Investment firms Jana Partners and D.E. Shaw Group said over the weekend that they plan to express their views on Philips' performance and capital structure both internally and publicly.
In broker action, shares in several European airlines, including Air France-KLM, Ryanair Holdings and easyJet (LON:UK:EZJ) , rose after UBS upgraded them to buy from neutral.
The broker told clients that Air France-KLM is the stock for investors expecting higher oil price volatility but cut its price target on the airline to €30 from €40, citing market concern over its interest in struggling Italian carrier Alitalia.
UBS upgraded easyJet following strong quarterly results, saying the airline is its top pick among low-cost carriers. Finally the broker said Ryanair, Europe's largest low-cost airline, should be more defensive against a downturn in the economy.
Air France shares rose 4.3%, after the firm also reported a 3.5% rise in November traffic, while easyJet shares climbed 4.1% and Ryanair shares edged up 0.6%.
And shares in French carmaker Peugeot advanced 5% after Societe Generale lifted its stance on the firm to buy from hold.
Meanwhile shares in Spanish utility Union Fenosa fell 2.9% after Credit Suisse issued a short-term trading sell recommendation on the stock, citing the Spanish government's surprise decision on Friday to claw back some value from carbon dioxide allowances. Credit Suisse retained its long-term neutral recommendation on the stock.
Write to Sarah Turner at firstname.lastname@example.org