LONDON, Oct 8 (Reuters) - European equities closed lower on Monday as miners tracked falls in base metal prices, and markets punished SAP (SAPG.DE: Quote, Profile , Research) for its biggest acquisition.
Shares in German computer software maker SAP lost 4 percent on analysts' scepticism over its plans to buy smaller rival Business Objects (BOBJ.PA: Quote, Profile , Research), which also issued a warning on its quarterly results.
Miners Anglo American (AAL.L: Quote, Profile , Research), Rio Tinto (RIO.L: Quote, Profile , Research) and BHP Billiton (BLT.L: Quote, Profile , Research) shed between 1.9 and 2.6 percent, hurt by a sharp decline in base metal prices, with copper down 3 percent. UK's FTSE 100 index .FTSE declined 0.8 percent.
The pan-European FTSEurofirst 300 shares index <.FTEU3> shed 0.3 percent to end at 1,579.7 after gaining a total of 2.2 percent last week in five straight sessions.
The benchmark is up 6.5 percent so far this year, recovering from lows struck in August when the downturn in the U.S. housing market spread to credit markets and hit global equities.
"We continue to think that valuations are attractive, sentiment is cautious, and while fundamentals are still risky ... we expect a mid-cycle slowdown environment, not a recession," Morgan Stanley's equity strategists said in a note.
Mergers and acquisitions activity, which had been one of the main drivers behind a rally in European stocks in the first part of the year, slowed during the summer, hit by a crisis in the credit markets.
"It's not because private equity firms are not in a position to launch leveraged buy-out offers at the moment that corporate takeovers will stop," said Romain Boscher, head of equity management at Groupama Asset Management, in Paris.
"The good news is that companies that are willing to do acquisitions will have less competition. But it also means we'll see smaller premiums paid."
BID TALK
Around Europe, Germany's DAX index <.GDAXI> lost 0.4 percent and France's CAC 40 <.FCHI> shed 0.2 percent. U.S. stocks were slightly lower in a thin trade due to the Columbus day holiday.
In Europe, shares in French drugmaker Sanofi-Aventis (SASY.PA: Quote, Profile , Research) jumped 1.8 percent and were the biggest index weighted gainers on market talk that Pfizer (PFE.N: Quote, Profile , Research) was looking to buy stakes in the group from Sanofi's major shareholders.
French engineering group Alstom (ALSO.PA: Quote, Profile , Research) rose 2.4 percent after French conglomerate Bouygues (BOUY.PA: Quote, Profile , Research) raised its stake in the company to about 30 percent, fuelling speculation that the two firms might strengthen their ties.
SAP was however a standout loser after it said on Sunday it had agreed to acquire Franco-American company Business Objects for a total of 4.8 billion euros.
"The move is contradictory to management's strategy to pursue organic growth with only small fill-in acquisitions and it will put a strain on financials next year," analyst Theo Kitz at Merck Fink said.
Shares in Business Objects rallied 17 percent.
Among gainers, Volkswagen (VOWG.DE: Quote, Profile , Research) climbed 1.9 percent after index provider STOXX Ltd said the German carmaker's shares would replace Spanish utility Endesa (ELE.MC: Quote, Profile , Research) in the DJ EuroSTOXX 50 index <.STOXX50E> of European blue chip shares from Oct. 10. Endesa closed 3.8 percent weaker. (Additional reporting by Peter Starck and Blaise Robinson)