UPDATE 2-European shares rise on M&A activity; Dialog Semi hits over 20-year highs

* Basic resources, tech, banks lead early gains
* Renesas agrees to buy Dialog Semi for $5.9 bln in cash
* BlackRock underweight on European equities
* German industrial output flat; DAX retreats from record
highs

(Updates to close)
By Shreyashi Sanyal and Susan Mathew
Feb 8 (Reuters) - European shares rose on Monday, led by
economically sensitive cyclical sectors, as sentiment was lifted
by hopes of a quicker recovery and multi-billion dollar deals in
the region.
The pan-European STOXX 600 .STOXX index rose 0.3% adding
to gains of 3.5% in the previous week, in line with upbeat
sentiment in global markets which saw Wall Street and an index
of world shares .MIWD00000PUS hit all-time highs on stimulus
hopes. MKTS/GLOB
Dialog Semiconductor DLGS.DE surged 16% to its highest in
over two decades and topped the STOXX 600 after Japanese
chipmaker Renesas Electronics Corp 6723.T agreed to buy the
Frankfurt-listed chip designer for 4.9 billion euros ($5.89
billion) in cash. "There are many other European shares which had fallen out
of favour for international investors and this (the deal)
indicates that global investors particularly American, Japanese
or Chinese investors are looking to invest in such names," said
Chris Bailey, European strategist at Raymond James.
France's Veolia Environnement SA VIE.PA said it is
launching an offer for all of waste and water management company
Suez SA SEVI.PA , valuing it 11.3 billion euros ($13.59
billion) after dropping efforts to win the backing of the Suez
board. The French firms closed lower as new legal hurdles awaited
the deal and amid a government warning of an increasingly
hostile takeover battle. Cyclical sectors including basic resources .SXPP , banks
.SX7P and chemicals .SX4P rose between 0.8% and 2.2%, and
were among top gainers on the main index. Technology shares
.SX8P gained 1.5%.
The rollout of COVID-19 vaccines globally and increased M&A
activity have helped reduce recent pessimism around European
equities. The STOXX 600, however, has yet to reach pre-pandemic
levels, about 5% away from 2020 highs.
"We are underweight European equities," said BlackRock
strategists in a note.
"The market has relatively high exposure to financials
pressured by low rates. It also faces structural growth
challenges, even given potential for catch-up growth in a
vaccine-led revival."
Data from Germany showed industrial output stagnated in
December as lockdowns to contain the COVID-19 pandemic held back
the export-oriented manufacturing sector in Europe's largest
economy. Frankfurt's main index .GDAXI closed flat, retreating from
record highs at the open.
This comes after data last week showed orders for
German-made goods fell more than expected in December, ending a
seven-month streak of positive data. = 0.8315 euros)