Financials get European shares off to firm start; payday for Carillion shorts

* STOXX up 0.3 pct, DAX outperforms

* Banks underpin gains, basic resources weak

* UK mid-cap Carillion crashes 32 pct after profit warning

* Moeller-Maersk hits 14-month high on Goldman note

* Orkla rises on Norsk Hydro deal
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By Helen Reid

LONDON, July 10 (Reuters) – European stocks edged higher on
Monday, with banks and utilities the strongest sectors, as
mergers and acquisitions rumbled on with some broker notes also
prompting individual stock moves.

The pan-European STOXX 600 was up 0.4 percent by
0720 GMT, rising in concert with euro zone stocks and
blue-chips. Strong gains in banks led by
Bank of Ireland boosted the benchmarks, while basic
resources were weak.

Outside the main bluechips, UK midcap construction support
services company Carillion grabbed traders’ attention
after a profit warning and CEO exit sent its shares tumbling
nearly 40 percent in heavy volumes.

Carillion shares are among the most heavily shorted across
the UK market with hedge funds including Marshall Wace and Naya
Capital reporting sizeable bearish bets according to FCA
disclosure data.

The worst-performing European stock was infrastructure
company Balfour Beatty, down 3.7 percent as traders
read across from Carillion.

In broader markets, Germany’s DAX rose 0.6 percent,
maintaining an edge over peers after export and import figures
came in stronger than expected, with a wider increase in exports
adding to the trade surplus of Europe’s biggest economy.

Shipping company Moeller-Maersk jumped 3.1
percent to a 14-month high and top STOXX gainer after Goldman
Sachs raised its forecast for it and peer Hapag, on an analysis
of shipping rates.

The broker however estimated a recent cyber-attack could
take a $150-200 million chunk out of Maersk’s revenue in the
third quarter, leaving its overall profit forecast for the firm
unchanged at $1.5 billion.

Shares in Norwegian conglomerate Orkla were among
the strongest performers, up 2.4 percent after Norsk Hydro
clinched a $3.2 billion deal to buy aluminum products
maker Sapa by purchasing a 50 percent stake from Orkla.

The acquirer itself only rose 1 percent.

CHR Hansen gained 1.8 percent after a raise to
‘buy’ from Goldman Sachs, which said the company had strong
pricing power.

The broker found input costs for European consumer staples
increased 13 percent year-to-date versus 2016, suggesting 2017
would be the first year of input cost inflation since 2011,
helping drive firmer pricing.

“As input costs rise, we prefer companies with pricing power
(from high gross margins or concentrated market structure)
and/or self-help opportunities,” analysts at Goldman said.

Food and beverage companies were the best-performing
sector, up 0.7 percent, with Unilever leading the FTSE
100.

German utility E.ON rose 2.5 percent, leading the
buoyant utilities sector after HSBC said recent weakness
offered an “excellent buying opportunity”, raising the stock to
a ‘buy’ from ‘reduce’.

Analysts at UBS said although relative outperformance of
European versus U.S. equities has slowed recently, they saw the
region regaining momentum as monetary policy began to tighten.

“Europe craves higher rates and U.S. bond yields,” they
wrote, pointing to the region’s higher weighting in materials,
industrials, financials and energy, against U.S. equities’
concentration in technology and consumer discretionary sectors
more suited to lower rates.

(Reporting by Helen Reid, Editing by Vikram Subhedar)

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