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Europe: Shares see strongest week since January 2015

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[LONDON] European shares rallied near 11-month highs on Friday after a strong week, helped by gains among media companies after a takeover bid ignited Sky's shares, though Italian banks were under pressure.

The STOXX 600 marked its fifth session of straight gains up 1 per cent, its best week since January 2015.

The standout performer on the pan-European index was Britain's Sky which soared more than 26 per cent after Twenty-First Century Fox Inc approached the pay-TV group with a US$14.1 billion takeover bid.

Sky's shares posted their biggest-ever one-day gain, and Europe's Media index jumped 4.5 per cent, its best day since May 2010.

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Equities got a boost on Thursday after the European Central Bank said it would scale back its monthly asset purchases, a surprise move that lifted euro zone bond yields, which in turn are seen as helping reduce pressure on bank profits.

However, Europe's basic resources index fell 1 per cent and Europe's banking index retreated 0.7 per cent as profit-taking kicked in after the index's best week in five years.

Italian banks were the biggest laggards, with Monte dei Paschi's shares plummeting more than 10 per cent after the ECB rejected the bank's request for more time to raise capital, virtually erasing all gains made this week on bets a way could be found to rescue the ailing lender, even involving state aid.

"A state intervention in Monte Paschi could entail heavy losses for shareholders but also hurt bondholders. If retail investors do get hurt too there could be a loss of confidence in the system and litigation risks would increase," said Angelo Menzella, portfolio manager and analyst at JCI Capital.

Such expectations helped shrug off concerns over political instability after Prime Minister Matteo Renzi's resignation on the back of a resounding defeat on Sunday in a referendum on his plans for constitutional reform.

Banca Popolare di Milano dropped 4.3 per cent, and Banco Popolare was also down 3.9 per cent.

UniCredit fell 2.3 per cent. Italy's largest lender is set to announce next week the country's biggest bank share issue, which could be worth up to 13 billion euros according to sources. "In Italy, virtually no bad loans have been written off at all ... and that is really difficult to get any economic momentum going when your banking sector is still seized up," Ed Smith, asset allocation strategist at Rathbones, said.

Elsewhere on the broader market, Amsterdam-based digital security company Gemalto rose 6.3 per cent after agreeing to buy 3M's identity-management business for US$850 million.

Among other strong gainers, cable company Altice rose 5.3 per cent after saying it was exploring the possibility of listing a minority stake in its US subsidiary.

Europe's healthcare index rose 3.2 per cent, among the top sectoral gainers, having been out of favour recently on concerns over pricing pressure in the United States.