* DAX near record highs, FTSEurofirst near 7-yr high
* Strong German retail sales help sentiment
* Portugal’s BCP, BPI rally on merger speculation
* Bid speculation also boosts Vallourec
By Francesco Canepa and Sudip Kar-Gupta
LONDON, March 3 (Reuters) - European stock markets hovered close to multi-year highs on Tuesday, helped by better-than-expected German retail sales data and merger speculation in the Portuguese banking sector.
Bid rumours also drove up the shares of French steel pipe maker Vallourec, which rose 7 percent after investment bank Macquarie said Vallourec could be a bid target. Vallourec declined to comment on the speculation.
German retail sales rose more by 2.9 percent month-on-month, and 5.3 percent year-on-year, in January, more than economists had expected. That helped Germany’s DAX index rise 0.3 percent to test an all-time high hit on Monday.
“We’re buying the dips and when it reaches new highs we take a little bit of profit, but not too much,” said Markus Huber, a senior trader at Peregrine & Black.
Shares in Portugal’s Banco BPI and Banco Comercial Portugues also surged 8.4 percent and 6.7 percent respectively, on speculation about a possible merger.
Magazine Expresso reported that the merger had been proposed by BPI shareholder Isabel dos Santos to stave off a takeover attempt by Spain’s CaixaBank.
The rise in those banks pushed up Portugal’s PSI index by 1 percent, making it among the best performers in Europe.
The pan-European FTSEurofirst 300 index was up 0.2 percent at 1,563.85 points by the middle of the trading session, just off a 7-year high set on Monday.
Keeping a lid on the gains, however, was Barclays which fell 3 percent after it set aside an extra 750 million pounds ($1.15 billion) for potential fines arising from allegations of manipulation in the foreign exchange market.
The FTSEurofirst 300 has rallied 18 percent since early January in anticipation of the European Central Bank’s bond-buying programme, which is due to start this month and is expected to lower yields in the bond market, cutting borrowing costs for companies and driving money into equities.
The ECB’s plans have helped to ease concerns over Greece.
A survey showed on Tuesday that investors’ expectations of the euro zone breaking apart had risen to their highest level in two years.
However, RBC Global Asset Management’s chief economist Eric Lascelles said there were encouraging signs that the euro zone’s economy was on the mend.
“The combination of low oil prices, low bond yields and a low euro unite to provide powerful economic stimulus. This theory is rapidly becoming a reality as euro zone economic surprises have veered from extremely negative to extremely positive in very short order,” said Lascelles.
($1 = 0.6509 pounds)
Europe bourses in 2015: link.reuters.com/pap87v
Asset performance in 2015: link.reuters.com/gap87v
Today’s European research round-up (Additional reporting by Blaise Robinson; Editing by Andrew Heavens)