UPDATE 1-European stocks extend record run on earnings optimism

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* STOXX 600 hits all-time highs for third day

* Taylor Wimpey jumps on forecast lift

* Commerzbank slides on swinging to loss (Adds comment, updates prices)

Aug 4 (Reuters) – European shares notched fresh highs on Wednesday as investors weighed upbeat quarterly earnings and a strong rebound in merger activity against the global spread of the Delta variant of coronavirus.

The pan-European STOXX 600 index rose 0.5%, extending its record-setting run to a third day.

Economically sensitive sectors such as travel and leisure and automakers were the top gainers, while tech stocks rebounded after Tuesday’s losses.

British insurer Legal & General gained 2.2% after it posted an above-forecast 14% rise in first-half operating profit, while UK homebuilder Taylor Wimpey Plc climbed 3.1% as it raised its full-year earnings outlook.

Coffee company JDE Peet’s jumped 5.5% on reporting a better-than-expected operating profit for the first half of 2021.

Analysts now expect STOXX 600 companies to post a record 139.6% jump in second-quarter profits versus a year ago, according to Refinitiv IBES data. They had forecast a more than 100% rise at the start of the earnings season.

“Earnings are coming out really strong and that is giving equity investors some comfort,” said Andrea Cicione, head of strategy at TS Lombard.

“The other thing that could give investors a rush of bullishness could be the fact that, if you look at the UK, new cases of COVID-19 are falling quite sharply. That gives you a hope that the same should happen in rest of Europe as well.”

A survey showed euro zone business activity raced ahead in July, expanding at its fastest pace in 15 years, as the lifting of more restrictions and an accelerated vaccine drive injected life into the bloc’s dominant service industry.

However, supply chain disruptions and labour shortages meant input prices surged at the fastest rate in more than two decades.

Germany’s Commerzbank fell 4.8% after it swung to a second-quarter loss following a write-off to end an outsourcing project and as the lender undergoes a major restructuring.

Thales, Europe’s largest defence electronics company, gained 1.6% after saying it was in advanced talks with Japan’s Hitachi to sell its GTS railway signalling business in a deal that values the division at 1.66 billion euros ($2 billion).

Swiss drugmaker Roche inched up 0.7% after Bloomberg reported that SoftBank had built a $5 billion stake in the company.

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