Merck deal helps world stocks clamber off lows

European stock markets recovered most of their earlier losses today after Wall Street opened higher on news that drugmaker Merck & Co. was buying Schering-Plough Corp. for around $41 billion.

The latest combination comes only a few weeks after Pfizer Inc. announced it has agreed to pay $68 billion for Wyeth and generated some muted optimism in the markets that depleted stock prices may entice an increase in mergers and acquisitions.

Confirmation of the cash and shares deal helped Wall Street open higher despite futures markets indicating a sharply lower opening. However, in a sign of the times, the gains were relatively modest. In more normal times, a big acquisition would have likely galvanized the stock market by more.

"Maybe it's time to start doing it, if you can fund it, but one swallow does not make a spring," said Howard Wheeldon, senior strategist at BGC Partners.

By mid-afternoon London time, the Dow Jones industrial average was up 49.54 points, or 0.8 per cent, at 6,676.48 while the broader Standard & Poor's 500 index rose 9.56 points, or 1.4 per cent, to 692.94.

In Europe, the recovery on Wall Street helped sentiment, and the FTSE 100 index of leading British shares was down 11.89 points, or 0.3 per cent, at 3,518.84, while France's CAC-40 was lower by 28.29 points, or 1.1 per cent, at 2,506.15. Germany's DAX was actually trading higher on the day, up 14.59 points, or 0.4 per cent, at 3,681.

Before the U.S. open, all three of Europe's main indexes were trading sharply lower after Japan's benchmark tumbled to a 26-year closing low, amid ongoing concerns about the length and depth of the global economic downturn and renewed fears about the capital position of the world's leading banks.

Those concerns were stoked over the weekend by the World Bank's forecast that the global economy will shrink this year for the first time since World War II and the British government's confirmation that it was taking a majority stake in Lloyds Banking Group PLC in exchange for insuring potentially more than 260 billion pounds ($367 billion dollars) of shaky assets. The bank saw its shares tumble around more than 10 per cent at one stage before the afternoon recovery saw it only 5 per cent lower.

Earlier in Asia, Japanese shares, already among Asia's worst performing this year, fell sharply on the news that the world's second-largest economy posted a record current-account deficit in January, its first in 13 years.

Japan's Nikkei 225 stock average fell 87.07 points, or 1.2 per cent, to 7,086.03, and Hong Kong's Hang Seng tumbled 576.94, or 4.8 per cent, to 11,344.58 on the coattails of HSBC, a huge component in the index.

Also weighing on Hong Kong were steep falls in mainland markets, where investors booked some profits after the government didn't announce new and bigger policies to stimulate the economy at an ongoing legislative meeting.

Elsewhere in Asia, Shanghai's benchmark plummeted 3.4 per cent, while stock measures in India, Singapore and Taiwan also fell. However, those in South Korea and Australia gained 1.6 per cent and 0.3 per cent respectively.

"Sentiment is terrible," said Ben Pedley, managing director of LGT Investment Management Ltd. in Hong Kong. "We're going to be in a funk, not only in Asia, but in the rest of the world for the next year or two."

In the oil market, benchmark crude for April delivery rose $2.70 to $48.22 a barrel as investors anticipated another OPEC production cut. The move back towards $50 a barrel has helped oil stocks around the world rally strongly on Monday, with Britain's BP PLC up more than 3 per cent and ExxonMobil Corp. in the US 2 per cent higher.

The dollar rose 0.7 per cent to 99.01 yen while the euro fell 0.3 per cent to $1.2610.