European shares close at record high as healthcare outperforms; US shutdown in focus

By Amir Orusov, Shashwat Chauhan and Purvi Agarwal

(Reuters) -Europe's STOXX 600 closed at a record high on Wednesday, with healthcare stocks leading the way after a U.S.-Pfizer deal reduced uncertainty in the sector, while investors digested the beginning of a U.S. government shutdown.

The pan-European STOXX 600 surged 1.2% to log its biggest one-day percentage gain since July 23. Most regional bourses were also trading higher, with London's FTSE 100 at a record high.

Healthcare stocks jumped 5.4%, marking their biggest one-day performance since November 2008. On Tuesday, Pfizer agreed to lower prescription drug prices in the U.S. Medicaid programme in exchange for tariff relief.

"The sector generally has struggled over the last year or so and what we are hopefully beginning to see is some measure of clarity about what the rules of the game may look like," said Richard Flax, chief investment officer at Moneyfarm.

Other pharma stocks such as Ambu rose 9.3%, Sartorius 9.5%, Merck 10%, Roche 8.6% and AstraZeneca 11.2%.

Novartis gained 3.9% after the U.S. Food and Drug Administration approved its oral treatment for a type of chronic inflammatory skin disease.

All sectors were trading in the positive territory, but travel and leisure stocks bucked the trend with a 0.4% dip.

Meanwhile, the U.S. government shut down much of its operations on Wednesday, which could likely halt the release of the September employment report due on Friday.

The absence of data is expected to increase volatility in markets and potentially impair the Federal Reserve's ability to gauge the economy's health in the near-term.

A private payrolls report came in below expectations earlier in the day, slightly raising bets on an October interest rate cut in the U.S.

"The Fed is still very likely to cut again in October, but given the importance of the labour market in its thinking at the moment..., this lack of data clarity certainly won't make its job any easier," said Luke Bartholomew, deputy chief economist at Wealth & Investments Group Aberdeen.

In Europe, data showed euro zone manufacturing activity slipped back into contraction in September, while inflation accelerated on higher services prices and a smaller decline in energy costs.

Manufacturing activity in the UK shrank at the fastest pace in five months. A decline was also reported from France and Germany.

UK blue-chips remained higher on the healthcare boost, while the midcap index reversed early declines to close 0.2% higher.

London's Tate & Lyle dropped 13% to the bottom of the STOXX 600 after the food ingredients maker warned that its annual profit and revenue would fall.

(Reporting by Shashwat Chauhan and Purvi Agarwal in Bengaluru and Amir Orusov in Gdansk; Editing by Harikrishnan Nair and Ed Osmond)