Shares in Peugeot jumped following reports that General Motors was to buy a small stake in the business.
Reports of an “alliance” between the two carmakers emerged last week, sending the French carmaker’s stock up by as much as 20 per cent.
“Right now it’s all noise, but the noise tells you something is happening,” said one analyst.
Investors shrugged off reports that a deal may involve a rights issue, and the shares climbed 7 per cent to €16.37.
“If the goal for GM is to have a 5-7 per cent stake in Peugeot, the shares are already in Peugeot’s treasury,” said one analyst. “They can reissue them. It’s a form of dilution, but you reissue them at market value or even at a premium.”
Credit Suisse criticized the potential deal. “We still struggle to see the benefits of an Opel/PSA alliance given that both companies face the same problem (falling prices and falling volumes) while lack of scale is unlikely behind the poor earnings performance.”
The auto sector as a whole enjoyed modest gains, after a sell-off in the previous session following JPMorgan’s downgrade of the sector. Renault rose 1.2 per cent to €39.55, while Fiat edged up 0.8 per cent to €4.94.
On the wider market, the FTSE Eurofirst 300 edged up 0.2 per cent to 1,075.82.
Cautious trading ahead of Wednesday’s longer term refinancing operation by the European Central Bank resulted in modest gains for national indices across Europe.
STMicroelectronics topped the CAC 40 index, rising 6.2 per cent to €5.68 after its joint venture with Ericsson, ST-Ericsson, won a contract from handset maker Samsung. The CAC 40 index rose 0.5 per cent to 3,456.81.
Another strong Italian bond auction supported the FTSE MIB as it rose 0.3 per cent to 16,362.57.
In Frankfurt, the Xetra Dax edged up 0.5 per cent to 6,884.51. Bayer weighed on the index, slipping 0.6 per cent €55.58 after it missed its earnings forecast in its fourth-quarter results. Underlying earnings before interest, tax and depreciation at the German chemicals and drugs group fell 9 per cent.
Lufthansa gained 1 per cent to €10.28 as Fraport, the operator of Frankfurt airport, launched legal action against strikes at the airport, which serves as Lufthansa’s main hub.