European Stocks Drop From 6 1/2-Year High; ABN Amro, Shell Fall

May 7 (Bloomberg) -- European stocks retreated from a 6 1/2- year high after ABN Amro Holding NV rejected an offer for its U.S. subsidiary, cooling optimism mergers and acquisitions will keep lifting shares.

``The initial euphoria about the ABN Amro deal has evaporated,'' said Boris Boehm, a fund manager at Nordinvest in Hamburg, which oversees $7 billion. ``This might be an inflection point after mergers drove the markets higher.''

ABN Amro rebuffed a bid from a group led by the Royal Bank of Scotland Group Plc, stoking concern the biggest takeover battle in the financial industry won't end anytime soon. Royal Dutch Shell NV paced declines by energy companies, dragging the Dow Jones Stoxx 600 Oil & Gas Index from this year's peak, as oil traded near a two-week low.

European stocks rallied to the highest since September 2000 last week as takeover speculation intensified and corporate earnings beat analyts' expectations.

Deals in Europe have totaled more than $1 trillion so far this year, based on data compiled by Bloomberg News. Mergers and acquisitions reached a record $1.6 trillion in 2006.

The Stoxx 50 declined 0.1 percent as of 11:43 a.m. in London, and Euro Stoxx 50, a measure for the 13 nations sharing the euro, dropped 0.1 percent. The Stoxx 600 was little changed, slipping less than 0.1 percent to 392.67.

Reed Elsevier NA led media companies higher, limiting the declines, following the sale of its Harcourt businesses to Pearson Plc for $950 million.

Shares of Bouygues SA, Alstom SA and European Aeronautic, Defence & Space Co. rallied on speculation the companies would benefit from a planned industrial shake-up by French President- elect Nicolas Sarkozy.

National Markets

National benchmarks slid in nine of 16 markets in western Europe that were open. Germany's DAX added 0.1 percent, while France's CAC 40 lost 0.1 percent. The U.K. is closed today for a public holiday.

ABN Amro lost 2.1 percent to 35.93 euros. Royal Bank of Scotland, Santander Central Hispano SA and Fortis said their $24.5 billion bid for ABN Amro's LaSalle Bank was rejected by the Dutch bank. ABN Amro said in a separate statement that the group's offer for Chicago-based LaSalle was not ``superior'' to an earlier $21 billion bid from Bank of America Corp.

``Many investors will start to think this is going to last a long time or may not happen at all,'' said Wim Zwanenburg, who helps oversee 27 billion euros at Bank Degroof Group, including ABN Amro shares. ``A deal might be challenged in court and we may see another emotional shareholder meeting. The soap continues.''

Two-Week Low

Shell, Europe's biggest oil company, dropped 0.8 percent to 26.46 euros. Total SA, the region's largest refiner, fell 0.8 percent to 55.31 euros.

``Fear of further oil price deterioration is weighing on the sentiment for oil stocks,'' said Philipp Musil, who helps oversee $24 billion at Vienna-based Constantia Privatbank AG.

Oil was little changed, after falling 6.8 percent last week, because of ample U.S. supplies and signs gasoline output is rising as refiners return plants from maintenance.

Crude oil for June delivery was at $61.95 a barrel in after- hours electronic trading on the New York Mercantile Exchange. The contract fell to $61.93 a barrel on May 4, the lowest close since April 19. Oil had its biggest weekly decline since the week ended Jan. 5.

Reed Elsevier, Bouygues

Reed Elsevier gained 1.8 percent to 14.42 euros. Pearson Plc, the owner of the Financial Times and publisher Penguin Group Inc., agreed to buy Reed Elsevier's Harcourt businesses for $950 million in cash to bolster its international reach in education publishing.

The purchase of Harcourt Assessment and Harcourt Education International will accelerate Pearson's goal of combining educational content and technology to offer new products and services, Pearson said May 4 after the market close.

Bouygues, the world's second-largest construction company, rose as much as 3.4 percent in Paris, while Alstom, the world's third-biggest builder of power stations, rose as much as 4.9 percent. EADS, Airbus SAS's parent, rose 2.02 percent.

``It's the Sarkozy effect pushing up the shares of Alstom, Bouygues and EADS,'' said Frederic Hamm, who helps manage about $200 million at Agilis Gestion in Paris. ``These are the companies more likely to benefit from his presidency.''

Sarkozy, presidential candidate of the governing Union for a Popular Movement, won 53.1 percent of the votes.

Rheinmetall AG added 1.5 percent to 75.10 euros. The German maker of car parts and military equipment said first-quarter net income rose by almost a third to 22 million euros because of higher sales at both the automotive and defense businesses. That surpassed the 17.8 million-euro median estimate compiled by Bloomberg News.

Air France, Tenaris

Air France-KLM Group, Europe's biggest airline, climbed 0.8 percent to 38.15 euros. Passenger traffic rose 3.1 percent in April on increased travel to destinations in the Americas and Asia.

The load factor, or proportion of seats filled, decreased 0.8 percentage point to 82.3 percent, as the airline offered 4.1 percent more seating capacity, the company said.

Tenaris SA fell 2.7 percent to 17.04 euros. The world's biggest maker of seamless pipes used to extract oil and gas said after the market closed on May 4 that first-quarter net income rose 15 percent to $509.4 million, or 41 cents a share, missing the average estimate of 91 cents a share in a Bloomberg survey.

Puma AG slipped 0.4 percent to 334.51 euros. Europe's second-largest sporting-goods maker cut its outlook for profit growth to ``low single digits'' from a February forecast of 10 percent or more, blaming an order backlog. First-quarter profit rose to 96.6 million euros from 93.1 million..