LONDON: European equities inched higher on Wednesday after steep declines in the previous session, with the retail sector boosted by a less-than-expected Hennes & Mauritz profit fall.
Shares in Hennes & Mauritz, the world's No. 2 clothes retailer, rose 4 percent after saying the impact of the strong US dollar had started to wane and should turn neutral or slightly positive by the fourth quarter.
Healthcare stocks were the top sectoral gainer, up 1 percent, with investors scrutinising news of US drug maker Pfizer agreeing on Tuesday to terminate its $160 billion agreement to acquire Allergan, in a victory to US President Barack Obama's drive to stop tax-dodging corporate mergers.
Shire, which plans to buy Baxalta in a $32 billion cash and stock deal that will make it one of the world's leading rare disease specialists, was up 2.7 percent.
Brenda Kelly, head analyst at London Capital Group, said Shire was now viewed as a target following the collapse of Allergen/Pfizer, while some other analysts said the Shire-Baxalta deal was unlikely to be impacted by the proposed US rules on tax-avoiding corporate "inversions", which lower companies' tax bills by redomiciling overseas.
"With Shire being an Irish tax domiciled company, we are not clear to what extent these rules may be important. But we do not see the possible loss of this level of tax as likely to derail management's strong desire to complete the transaction," Credit Suisse analysts said in a note.
The pan-European FTSEurofirst 300 index was up 0.2 percent at 1,290.97 points by 1054 GMT after falling 1.9 percent in the previous session.
The Italian banking sector index rose for the first time in ten sessions, as the country appeared to be making progress in addressing the industry's long running problems.
Sources close to the matter said Italy is considering setting up a state-backed fund that would help troubled lenders by buying up bad loans and plug capital shortfalls. Shares in Fortum and Swedbank fell 11 percent and 5.7 percent respectively after going ex-dividend.
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