* European M&A and index valuations: http://reut.rs/2nrVMW6
* Europe Inc vs USA Inc profits: http://reut.rs/2mx3Wrm
* MSCI Europe earnings estimates http://reut.rs/2553txN
* Unilever bid shocks markets, resets assumptions
* Corporate confidence returning, environment for M&A in "sweet spot"": Goldman
* UK industrials sector on radar as weak sterling tempts foreign buyers
By Helen Reid and Vikram Subhedar
LONDON, March 17 (Reuters) - A boom in European deal-making activity -- a sign better growth prospects are boosting confidence in European corporate boardrooms -- is helping support stock market valuations which, on some measures, appear stretched.
A brighter outlook for the global and regional economy, buoyant stock markets and low borrowing costs have underpinned merger and acquisition (M&A) activity in Europe, which is enjoying its best three-month period since 2007, Reuters calculations show.
Moreover, rising share prices of both acquirer and target companies when deals are announced suggest shareholders are willing to back mergers, a shift from recent years when they preferred dividends and cautious spending.
"Doing deals in the peak of a market is also unwise as you could end up paying more – so what you want is the sweet spot where companies aren't trading on very expensive multiples," said Sharon Bell, a strategist at Goldman Sachs.
"We are at that sweet spot now."
European equities trade at just under 15 times forward earnings, slightly above the long-term average of about 14 times. But they are well below peaks seen over the past 15 years, and underpinned by the best earnings outlook for regional companies since 2010. http://reut.rs/2nrVMW6
The broad sweep of sectors involved in M&A, from global food and personal goods giants to UK industrials and oil services firms, is also seen as a healthy sign and is spurring a rethink of valuations.
"There was nothing for a few years, so all the activity that was bottled up is bubbling up now," said Goldman Sachs's Bell.
The surprise $143 billion takeover bid by Warren Buffett-backed Kraft Heinz for Unilever, while rejected, has reset some assumptions about stocks, market participants say.
"The size of the proposed transaction was a wake-up call for corporations all over the world - and their investors," star UK fund manager Nick Train wrote in his latest letter to investors.
Shares of large consumer staples companies have lagged the recent stock market rally as investors preferred faster growing sectors in the markets.
"Towards the end of last year there was a lot of bearish talk about rich valuations in consumer staples like Unilever," said Mark Martin, a fund manager at Neptune Investment Management, who manages a portfolio of mid-sized UK companies.