STOCKS NEWS EUROPE-Rolls-Royce shares surge after power systems stake buy

Shares in Rolls-Royce gain as much as 3.7 percent to 1,064 pence, top risers on Britain's FTSE 100, after the engine maker announces a buy out of German carmaker Daimler (Xetra: 710000 - news) 's AG stake in their power systems joint venture.

Rolls-Royce said on Friday after the London stock market closed that it would take full ownership of the three-year-old Rolls-Royce Power Systems unit by purchasing Daimler's estimated 1.9 billion pound ($3.18 billion) holding using cash and some debt.

"The market has taken the news well this morning from Rolls-Royce's perspective," said Saxo Bank trader Adam Seagrave.

"They are well positioned to finance the deal from their net cash balance and whilst the venture has already added new capability to Rolls-Royce's reciprocating engines business the feeling is they will be able to extract further synergies in a long term growth market."

Jefferies analyst Sandy Morris says the deal will likely enhance Rolls-Royce's earnings by 5-6 percent.

Trading volume in Rolls Royce (LSE: RR.L - news) stands at around a third of its 90-day daily average after just an hour's trade, against the FTSE 100 on 12 percent.

The announcement, however knocks shares in Finnish ship and power plant engine maker Wartsila 3 percent lower as Rolls-Royce is now seen as unlikely to bid for it following the power systems deal.

Wartsila's stock has been rising this year after the company in January said Rolls-Royce looked to buy it out, although the talks ended without a deal.

"After this (Daimler) move, it could well be the case of Wartsila is not that topical, suitable or even possible to Rolls-Royce anymore. Wartsila is worth some 8 billion euros, so together with the power systems deal the number would get pretty big for Rolls-Royce," says analyst Pekka Spolander from Pohjola Markets.

Wartsila, which is the most heavily traded stock on the Helsinki bourse on Monday morning, falls 2.5 percent to 39.54 euros by 0854 GMT.

Reuters messaging rm://brenda.goh.thomsonreuters.com@reuters.net

jussi.rosendahl.thomsonreuters.com@reuters.net ($1 = 0.5981 British pounds)