Europe close: Stocks end higher as merger news and economic data offset Covid worries

European stocks finished higher on Monday as upbeat eurozone business activity data and a sharp rise in Morrisons shares helped to offset worries about the Delta variant.

"US traders might be on holiday but that hasn’t stopped European markets from advancing, and the FTSE 100 in particular has enjoyed a good, solid day of trading that has seen it add 40 points to the score.

"Positive noises about ‘freedom day’ on 19 July and an end to many of the restrictions of the past year has lent an air of ‘cyclical rebound’ to today’s trading [...]."

The pan-European Stoxx 600 was up 0.34% to 458.38, alongside an 0.08% rise on the German Dax to 15,661.97, while the Cac-40 edged up 0.22% to 6,567.54.

Shares across the Continent had fallen earlier after French Health Minister Olivier Veran warned that his country could be heading for a fourth wave of the pandemic due to the Delta variant, which started in India.

Some investors fear the economic recovery could be thwarted as the number of cases rise and countries are slow to introduce travel restrictions. In the UK, medical experts have expressed severe concerns at the government’s insistence that all restrictions will be lifted on 19 July.

On a related note, the latest figures published in Spain revealed a sharp acceleration in the number of new Covid-19 infections over the weekend.

In other economic news, eurozone businesses expanded activity at the fastest rate in 15 years in June as the easing of more coronavirus restrictions brought life back to the bloc’s dominant service industry, a survey showed on Monday.

IHS Markit’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, jumped to 59.5 last month from May’s 57.1, its highest level since June 2006.

Morrisons shares jumped 11.6% to a near eight-year high as US private equity company Apollo Global Management said it was considering a possible offer for the British supermarket group. Morrisons on Saturday agreed to a £6.3bn with rival buyout specialist Fortress.

Markets.com analyst Neil Wilson said the share price rise reflected a premium to the agreed bid "that indicates investors believe there could be more juice to be squeezed from this particular bidding war".

"I think there could well be another offer or two and 280p might be seen before it’s a knockout. We’ve talked fairly regularly about the amount of private equity money there is waiting for UK companies, which are cheap vs peers."

"Given our interventionist chancellor (finance minister) wants to open up the listing process to make it more appealing to list in London, he may also want to consider ways to shore up the defences of public companies. When you look at UK valuations vs US and even European peers it’s still too cheap."

Shares in rivals Sainsbury's and Marks & Spencer were also up on the news.