A better day for the dollar and an early rally on Wall Street helped to lift the mood in Europe. The FTSE Eurobloc 100 index added 1.1 per cent at 1,081.58 and the FTSE Eurotop 100 index rose 1.7 per cent to 2,987.59. The broader FTSE Eurotop 300 index ended 1.7 per cent better at 1,308.14.

Frankfurt recovered almost half of Friday's steep shakeout for the Xetra Dax index, gaining 53.11 to close at 5,239.64. Viag and Veba moved in opposing directions after the two utilities formally wheeled out the details of their merger plan. Veba, which ends up with two-thirds of the enlarged group, added €1.70 at €55.20 while Viag shed 77 cents at €19.48.

Elsewhere among utilities, RWE, which unveiled plans to spend $33 billion on acquisitions, refused to comment on press speculation that it was about to launch a British takeover bid. The stock added 40 cents at €41.00.

The takeover excitement in the British banking sector failed to generate similar reaction in Frankfurt. Dresdner, long seen as a potential partner for Deutsche Bank, fell 51 cents to €45.81. Commerzbank added 31 cents at €36.76

Mannesmann gained €3.00 to €150 on speculation that steel group Thyssen Krupp was set to align itself with Mannesmann's motor and engineering operations. Thyssen denied the rumour. Munich Re tumbled €2.45 to €192.05 ahead of today's six-month results statement. Rival insurer Allianz shed 84 cents at €270.51.

Paris climbed sharply in modest volumes. The CAC-40 index ended 55.73 or 1.2 per cent higher at 4,596.60. Pernod Ricard was in demand on talk that it might link with Allied Domecq in Britain. Pernod shares closed €3.20 or 5.1 per cent higher at €66.30.

Accor, the hotel chain, gained €5.20 or 2.5 per cent to reach €215.70 on talk that it might release better-than-expected earnings tomorrow. Lapeyre, the construction company, advanced €3.95 or 6 per cent to €70 on speculation that tax cuts might benefit the building sector.

Amsterdam rose €8.07 to €562.40 on the AEX index with strong gains by leading stocks dictating direction. Philips, off more than 4 per cent on Friday, jumped €2.10 to €96.10 and Royal Dutch gained €1.15 to €56.75. Chemicals leader Akzo Nobel also rallied strongly, recouping part of last week's losses with a rise of €1.20 to €40.20.