European shares up 1.9 percent on telecoms and energy

By Atul Prakash

LONDON (Reuters) - European equities closed higher for the fifth session in a row on Monday, as stronger telecom shares and energy stocks boosted by a higher crude oil price outpaced weaker automobiles, which were hit by falling car demand.

The FTSEurofirst 300 .FTEU3 index of top European shares rose 1.9 percent to 873.01 points, the highest close since mid-November last year. It plunged 45 percent in 2008, but is up 16 percent since hitting a 5-1/2-year low last November.

Telecoms were one of the biggest gainers on the first full day of 2009 for many, with Swisscom (SCMN.VX) rising 5 percent, Cable and Wireless (CW.L) adding 4.6 percent, Vodafone (VOD.L) up 4.4 percent and Portugal Telecom (PTC.LS) rising 4.6 percent.

The market drew strength from news that U.S. President-elect Barack Obama was seeking as much as $310 billion (212 billion pound) in tax cuts as part of a massive stimulus plan to counter what policymakers warned could be a prolonged period of economic stagnation and deflation.

In Germany, Chancellor Angela Merkel met her coalition partners to discuss a second fiscal stimulus deal worth up to 50 billion euros (47.5 billion pound) on top of last year's 31 billion euro package.

But analysts remained cautious and said the markets faced another difficult year after posting record declines in 2008, hit by a credit crisis that began with U.S. mortgage defaults in 2007 and threatens much of the world with deep recession.

"The outlook is not really encouraging. We would anticipate that there is still going to be a lot of bad news out there that will be reflected in reduced valuations across all sectors," said Neil Parker, market strategist at Royal Bank of Scotland.

"We have to get through the year-end reporting season, and once we really know how badly affected a lot of businesses have been from the global slowdown, then we will be able to make a better judgement on how balance sheets and how profitability will be affected throughout 2009 and into 2010."