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Europe: Shares post second weekly gain as Unilever soars

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[LONDON] European shares posted their second week of gains on Friday with personal and household goods stocks led by a leap in Unilever's shares after a takeover bid, though banking and resources stocks saw a pull-back.

The pan-European Stoxx 600 index was flat in per centage terms at its close, but ended near a 13-month high reached on Wednesday.

The rally has been fuelled by strong earnings updates, a pick up in merger and acquisition (M&A) activity, with cyclical stocks such as miners and banks lifted by solid economic data.

A prime example of M&A activity was a surprise US$143 billion takeover bid from U.S. food company Kraft Heinz Co for household goods firm Unilever. Unilever rejected the US$50 per share offer, saying that it was too low.

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Unilever's London-listed shares jumped 13.4 per cent, hitting a record high and posting their best day in 30 years, and the broader household and personal goods sector rose 2.8 per cent to a new high.

Analysts, however, were unconvinced. "The approach by Kraft-Heinz is a total surprise. Unilever has double the revenue of Kraft for instance," Jauke de Jong, analyst at AFS Group, said. "Unilever would be on strong grounds to state that the offer materially undervalues the company, with recent large cap consumer staples transactions having been conducted on higher multiples," analysts at Barclays said in a note, citing the recent US$16.6 billion tie-up between Reckitt Benckiser and Mead Johnson Nutrition as well as Anheuser-Busch InBev's acquisition of SABMiller.

Results also drove share prices, with Essentra the top Stoxx 600 gainer, up nearly 15 per cent after reporting earnings.

Though the supplier of speciality plastic and packaging components saw a 26 per cent fall in full-year profit, analysts at Jefferies said that absence of any "bad news" was positive.

Banks and commodities-related stocks, however, weighed, with Europe's Stoxx bank index down 0.9 per cent as investors booked profits for a second day after the index hit a three-week high on Wednesday, helped by growing expectations of a rate hike next month in the United States.

Standard Chartered, Bank of Ireland and Credit Agricole fell between 2.7 and 4.4 per cent.

Miners were also weaker, down 1.1 per cent, pulling back after climbing earlier this week to their highest level in more than two years. Copper slid on Friday because of some profit taking, but the likelihood of strong demand from top consumer China was expected to support prices.

Top loser on the Stoxx was Vopak, down 7.1 per cent, after the Dutch oil and chemical storage company said it did not expect core profit to grow this year.