LIVE MARKETS-M&A drives the day while Morgan Stanley jumps on UK equities bandwagon

* STOXX 600 down 0.1 pct

* IWG (LSE: IWG.L - news) up 21 pct after three rival suitors make approaches

* China Three Gorges takeover bid boosts EDP up 11 pct

* Morgan Stanley (Xetra: 885836 - news) upgrades UK equities to "overweight"

May 14 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to

share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net

M&A DRIVES THE DAY WHILE MORGAN STANLEY JUMPS ON UK EQUITIES BANDWAGON (0928 GMT)

Once again, it's all about dealmaking today with IWG and EDP leading the

STOXX after takeover offers.

Portuguese energy firm EDP is an interesting one because it's risen well above the offer

price, and JP Morgan analysts reckon management could ask for China Three Gorges to better its

bid. The deal is also likely to face regulatory obstacles as it has to be cleared by the U.S.,

Poland, France, Romania, Brazil and Canada.

European leaders have been growing more tetchy about Chinese acquisitions of European

strategic businesses like utilities, with Macron in January pressing the EU for a united front

on foreign takeovers.

Generally this year is shaping up to be one of the strongest for global M&A volumes.

"With (Other OTC: WWTH - news) strong earnings growth companies are looking to expand their revenues via

acquisitions," says Edward Park, investment director at Brooks Macdonald (LSE: BRK.L - news) .

"The low cost of financing also plays a part, with a relatively low hurdle in terms of

additional profit required from synergies to justify a bolt-on acquisition," he adds.

Meanwhile, M&A is one of the reasons Morgan Stanley cites for its upgrade of UK equities to

"overweight". MS joins a growing crowd of brokers singing the praises of the UK market which is,

according to them, undervalued (see their chart below).

"Attractive micro trumps uncertain macro" in the UK, MS strategists say, and the stock

market should benefit from higher commodity prices and rising corporate activity.

(Helen Reid)

WHAT YOU NEED TO KNOW BEFORE THE OPEN (0649 GMT)

European stock futures are pointing up, tracking Asian markets higher as U.S.-China tensions

show signs of easing ahead of a second round of trade talks.

Investors were shrugging off the progress in talks between Italy’s 5-Star Movement and

League. SocGen (Paris: FR0000130809 - news) analysts admits this was their “worst-case scenario” a couple of months ago but

now that it’s materializing, they are focusing on the fact a weaker government would find it

harder to push through fiscal policies they see as counterproductive. Italy’s FTSE MIB is one of

the best-performing equity indices worldwide year-to-date as the market focuses on a stronger

economy.

Results are still coming in with 75 percent of MSCI Europe companies having reported

first-quarter earnings thus far. Energy is easily leading the way with 10.5 percent earnings

growth, while overall earnings growth is flat. Revisions for second-quarter earnings are

trending higher, though, an indication investors think the worst may be over for European

corporates pressured by, among other things, a strong currency.

M&A continues to be a major driver, with China Three Gorges the latest foreign investor

snapping up a European company, buying up Portuguese energy firm EDP. EDP is set to gain 3 to 10

percent at the open.

British serviced office provider IWG received takeover approaches from three rival suitors

on Friday after the close, potentially plunging it into a bidding war. Its shares are seen up 10

to 20 percent today. AccorHotels meanwhile sealed another deal to buy a foreign hotel chain.

(Helen Reid)

*****

EUROPEAN STOCK FUTURES UP AS ITALY GOVERNMENT TALKS FAIL TO SHAKE THE MARKET (0614 GMT)

Talks between Italy's anti-establishment 5-Star and the far-right League to form a

government don't seem to have investors too worried, with futures pointing to gains across

Europe's major benchmarks.

Italy's FTSE MIB has been one of the best-performing equity indices worldwide this year,

Goldman Sachs (NYSE: GS-PB - news) analysts note, while most of its European counterparts are flat.

"We think it is unlikely that investors will perceive Italian political developments as a

systemic threat to euro area institutions or growth, in the near term," they write.

Here's your snapshot:

(Helen Reid)

*****

EARLY MORNING EUROPEAN HEADLINE ROUND-UP (0553 GMT)

Analysts are getting their heads round the progress in Italian government talks. "A Five

Star/League coalition government is taking shape," note SocGen analysts. "This was our

worst-case scenario three months ago. However, this government is unlikely to have enough

political and fiscal room for manoeuvre to deliver a large fiscal slippage, as indicated in the

two platforms."

But there's also plenty of results and other company news to keep traders and investors busy

today.

In what could be a big step for the nascent technology underlying cryptocurrencies, banks

HSBC and ING say they've performed the world's first trade finance transaction using

blockchain.

In other news, results and M&A - both inbound and outbound:

France's AccorHotels strikes deal to buy Chile (Stuttgart: 704599.SG - news) hotel group Atton

ABN Amro Q1 profit falls 3 pct on loan impairments

Innogy's Npower grows operating profit in Q1

K+S Q1 core profit rises 7 pct on rising volumes

HelloFresh Raises 2018 Revenue Growth Outlook

Bayer CFO sees lower Monsanto (Hamburg: 1132157.HM - news) synergies after divestments -Boersen-Zeitung

Ryanair target Laudamotion dumps Zurich flights due to plane shortage

China Three Gorges launches $10.8 bln bid for Portuguese power firm EDP

(Helen Reid)

*****

MORNING CALL: EUROPEAN STOCKS TO RISE ON FADING TRADE TENSIONS (0536 GMT)

European stocks are set to follow the Asian trend up this morning after last week ended on a

high. Progress in talks between Italy's Five Star and League towards forming a government don't

seem to have overly shaken the market, with the euro hardly moved.

Asian shares rose to near two-month highs on hopes U.S.-China trade tensions were thawing

after Trump pledged to help ZTE Corp (Xetra: A0M4ZP - news) "get back into business, fast" ahead of a second round of

trade talks between officials this week.

Italy's 5-Star Movement and far-right League called the head of state on Sunday to report on

their progress towards naming a prime minister. The two have been trying to find an independent

figure without allegiance to either party to rule the government.

Germany's DAX - which is very exposed to China and trade - is called up 29 points at 13,030,

the CAC 40 is seen opening 10 points higher at 5,552, and the FTSE 100 is expected to open 1

point lower at 7,723 points.

(Helen Reid)

*****

(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus and Kit Rees)