The European markets rose for the second day on Monday, led by a rally among drugmakers on speculation that a swine flu outbreak will boost sales of influenza treatments.

Swine flu, a respiratory disease of pigs, has spread to Canada, Spain and five states in the U.S. and there are also suspected cases elsewhere in Europe and as far away as New Zealand. The virus has killed more than 100 people in Mexico.

The World Health Organisation emergency could raise its pandemic alert level to phase four or five as the deadly swine flu outbreak shows no signs of slowing, a spokesman for the agency said. An increase above level 3 on the WHO's six-step alert system would be the first since the U.N. agency adopted the current pandemic risk scale in 2005.

The FTSEurofirst 300 index of pan-European blue chips closed 0.41% higher at 813.69 points, while the narrower DJ Stoxx 50 index rose 0.56% to 1,993.33 points.

Around Europe, the U.K.'s FTSE 100 index rose 0.27% to 4,167.01 and Germany's DAX index surged up 0.42% to 4,694.07, while France's AC 40 index fell 0.01% to 3,102.43.

Pharmaceutical stocks were among the biggest gainers, as the swine flu outbreak spread beyond Mexico to Spain, Canada and the U.S. GlaxoSmithKline, Europe's biggest drugmaker, climbed 5.7%, while AstraZeneca, Britain's second biggest drugmaker, rose 3.7% and Sanofi-Aventis, France's biggest drugmaker, added 2.4%. Swiss drugmaker Roche gained 3.5%.

Crucell, the Dutch drugmaker with technology to make vaccines against influenza, rallied 7.9%.

On the other hand, the pandemic alert hit travel and leisure related stocks. Air France-KLM, Europe's biggest airline, fell 6.6%, while Lufthansa, the second biggest, slipped 9.3% and British Airways, the third biggest, dropped 7.8%.

Cruise operator Carnival slid 6.8%, while hotel company Accor fell 3.7% and tour operator Thomas Cook lost 4.4%.

Elsewhere, 3i Group, Britain's biggest publicly traded private-equity firm, tumbled 14% after the company said it is considering selling shares in a rights offering to reduce debt.

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