European stocks ended firmly higher across the board Friday, despite weaker-than-expected U.S. economic data, as China and U.S. aluminum producer Alcoa teamed up to buy a $14 billion stake in Rio Tinto.
Shares of Rio Tinto closed 13 percent higher after Chinese mining company Chinalco and major aluminum company Alcoa bought 12 percent of Rio's shares. BHP Billiton has until Saturday to make a formal offer for Rio and the latest move could start a bidding war.
"I do believe that BHP is going to make a formal offer next week ... and I would assume it'll be probably be raised," Tom Gidley-Kitchin, an analyst at Charles Stanley, said. "The Chinese are trying to stop the deal go through. I'm sure that's the reasoning behind this. It may make the probability of BHP providing a cash alternative or cash component more probable. It certainly puts some pressure on BHP."
Meanwhile in the U.S., the Institute for Supply Management's index of national factory activity rose into expansion territory to 50.7 in January after having contracted in December. Economists had expected a reading of 47.3.
The news helped ease worries caused by an earlier announcement that U.S. employers unexpectedly cut 17,000 non-farm jobs in January, well below the market consesus forecast of a 70,000 gain.
Also in America, Microsoft made a $44.6 billion bid for Internet giantYahoo ,the newshelped support global equity markets. The European technology sector took confidence from the proposed takeover and jumped higher.
Financial stocks also performed well, with the Stoxx financial services indexes up 3.4 percent. Financials performed well in the U.S. on Thursday after major rating agencies decided to hold off downgrading bond insurers.
"If the markets decide to return to fundamentals for a change, which is not something they've been doing recently, they're doing okay," said Edmund Shing, a strategist at BNP Paribas in Paris. "Guidance may not be fantastic but it's certainly not telling you there is a recession coming."
In the tech sector, handset maker Ericsson fell 3.5 percent. The company said its quarterly profit fell more than expected, but that it planned to cut about 4,000 jobs.
"In the P&L (results) there's one weak spot and that's the multimedia division with much bigger losses than the consensus was looking for. Everybody was looking for a small operating profit," said Thomas Langer at West LB. "But that's the only thing that somewhat spoiled the P&L. All the core businesses performed in line and maybe networks was a bit better than expected, especially on the top line. On the positive side I would highlight the operating cash flow which was much stronger than we expected."
And British Airways slipped 4.2 percent in London. The carrier said profit rose nearly 29 percent for the nine months ended Dec. 31, helped by its business class business, but there were market concerns about how high-end travel would fare in times of economic downturn. The company also said it expects fuel costs to rise in 2008.
Meanwhile shares in troubled French bank Societe Generale gained 5.5 percent after a report that local rival Credit Agricole had hired advisors to consider a possible takeover approach.
-- Reuters contributed to this report