LONDON: Europe's main stock markets diverged Tuesday after news that Finnish telecoms giant Nokia was in advanced talks to buy Franco-American rival Alcatel-Lucent.
The benchmark CAC 40 index in Paris dropped 0.73 percent to 5,215.59 points in mid-afternoon deals, while Frankfurt's DAX 30 shed 0.83 percent to 12,236.09 points.
London's FTSE 100 however edged up 0.05 percent to 7,068.11 points, as investors digested news that British annual inflation held at a record-low zero in March.
Also Tuesday, the International Monetary Fund hiked its eurozone growth forecasts but warned the outlook was fragile, with the Ukraine crisis and uncertainty over Greece's future in the single currency bloc adding to concerns.
The IMF said in its semi-annual World Economic Outlook that the Japanese and European economies were picking up pace as it stuck to its forecast for moderate global growth this year and next.
The IMF trimmed its outlook for the United States but said the country would remain the driver of world output in 2015 and 2016 while many emerging economies struggle with low commodity prices and turbulence in financial markets.
It said the plunge in oil prices was not yet generating all the potential benefits of more spending money in consumers' pockets.
The euro strengthened to $1.0668 from $1.0571 in New York late on Monday, before the European Central Bank's interest rate decision on Wednesday.
Nokia revealed Tuesday it was in talks to purchase Alcatel-Lucent, with the aim of creating a telecoms and Internet technology behemoth. No price was given.
In reaction, Alcatel-Lucent was the top riser in Paris, surging by almost 17 percent in initial trade. It later stood at 4.41 euros, up 14.25 percent.
In Helsinki, however, Nokia's share price plunged 4.31 percent to 7.43 euros.
"Investors have not reacted the way Nokia likely would have hoped following the announcement that the company might buy Alcatel-Lucent," said Spreadex trader Connor Campbell.
"Roughly 12 months after it sold its dismal handset business to Microsoft, the move for Alcatel does not appear to be the consolidation Nokia potentially needs, with investors' reactions suggesting the risk of the takeover is unwanted," added Campbell.
"Alcatel on the other hand, unsurprisingly for the minor partner in this deal, has seen its shares rocket; the French company is worth three times less than Nokia, and will likely welcome its enhanced role in the sector."
Finland's Nokia was the world's biggest mobile phone maker for more than a decade until it was overtaken by South Korea's Samsung in 2012.
Then in 2014, Nokia sold its mobile phone and tablet division to US software giant Microsoft, and the company now develops mobile and Internet network infrastructure for operators.
The deal would likely aim "to combine resources, gain market share and cut costs at the same time ... but cutting costs is not that simple," Kantar Worldpanel telecoms analyst Imran Choudhary told AFP.
"Add to that the potential involvement of the French government and regulators, it doesn't come as a surprise that this could be very tricky for Nokia to pull off and to deliver gains on -- which would explain why investors have not reacted positively, with their share price sliding since the announcement."
Wall Street opened mostly on the up side on Tuesday after slightly better than expected company results at the start of a heavy week of earnings and economic data.
Half an hour into trade, the Dow Jones Industrial Average was up 0.33 percent to 18,036.04 while the tech-rich Nasdaq Composite Index gained 0.09 percent to 4,992.79, but the broad-based S&P 500 shed 0.12 percent to 2,092.43.
Across in Asia on Tuesday, Hong Kong retreated on profit-taking after a near-15 percent rise over eight days, while Tokyo was hurt by a stronger yen as Asian investors await the release of key data later in the week.
Hong Kong ended down 1.62 percent but Shanghai closed up 0.34 percent and Tokyo finished on a flat note.
Later this week, traders will also digest key US retail sales data and Chinese growth figures.
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