MILAN European shares were set for a second week of gains on Friday with merger and acquisition speculation around drug maker Actelion and insurer Generali helping the region's benchmark index stay near 11-month highs.
The pan-European STOXX 600 index moved in and out of positive territory and was down 0.2 percent by 0951 GMT.
The index has gained almost 6 percent in the past two weeks boosted by a rally in battered banking stocks on expectations that rising bond yields would ease margin pressure and further underpinned by the strengthening of the dollar.
Actelion (ATLN.S) rose 8.8 percent to hit fresh record highs, making it the biggest gainer on the STOXX.
People close to the matter cited by Bloomberg said its French rival Sanofi (SASY.PA) was discussing a price of about $275 per share to take over the Swiss drugmaker in a deal that could come as soon as next week.
Continued talk about a potential deal also raised hopes of further consolidation in an industry that faces pricing pressure in the U.S. and whose share price valuations look expensive when compared to cyclical sectors such as banks.
"This deal also underlines the strong M&A activity in this sector, which can also be expected to continue in the medium term," BayerLB analyst Miraji Othman said in a note.
Generali (GASI.MI) rose as much as 5.2 percent with traders citing fresh media talk about a possible bid from Germany's Allianz (ALVG.DE) for the Italian insurer's French business.
People familiar with the matter cited by Bloomberg said Allianz was in discussions with Generali as it weighed a bid for the company's French operations.
A Milan-based broker said even though he believed Generali would not sell its French business, any disposal would clearly be positive as it would remove a key hurdle to a potential tie-up between the Italian group and French peer AXA (AXAF.PA)
Generali, whose shares were last up 2.3 percent, declined to comment, while a source said the company did not plan to leave France. Shares in Axa were flat and those in Allianz fell 0.2 percent.
Banks .SX7P were on the back foot, down 0.3 percent, after hitting their highest since January on Thursday.
Monte dei Paschi di Siena (BMPS.MI) rose 1 percent. The troubled Italian lender opened its offer for a debt to equity conversion to retail investors, a major part of a privately-funded rescue of the troubled bank.
Should the plan fail, the Italian government is ready to step in with state money to keep the bank in business, though that would require private investors to share in losses.
Among outstanding movers were Rentokil (RTO.L) which surged 6.8 percent. The British company agreed to combine parts of its workwear and hygiene units with those of Germany's Haniel to create a leading European provider with combined revenue of about 1.1 billion euros.
Online takeaway company Just Eat (JE.L) fell 4 percent, leading fallers on the STOXX, with traders citing a BAML downgrade to "neutral".
(Reporting by Danilo Masoni; Editing by Tom Heneghan)