Buoyed by merger hopes and bargain hunting, European markets swung higher yesterday. The FTSE Eurobloc 100 index, off 2.1 per cent on Tuesday, gained 0.7 per cent at 1,089.09. The FTSE Eurotop 100 index added 0.7 per cent at 2,999.32 and the broader FTSE Eurotop 100 index improved 0.6 per cent to 1,308.50.

Frankfurt pushed higher as the merger spotlight switched from retailers to utilities. By the close the Xetra DAX index was up 46.35 at 5,317.12.

Viag and Veba shot ahead as the mooted merger of the two utilities came sharply back into focus. A joint statement declared that although a number of important issues still had to be resolved, a merger framework had been decided. Viag surged €1.58 or 8 per cent to €21.42 to top the European performance charts. Veba gained €2.48 at €61.60.

Paris resumed forward progress after Tuesday's fall, with car manufacturers and oil stocks providing fresh momentum. The CAC-40 index ended at 4,633.38, up 44.16 or 1 per cent.

TotalFina and Elf Aquitaine, the two oil groups involved in a bitter struggle to take each other over, both advanced as the oil price continued to rise. Total rose €2.80 or 2.3 per cent to €124.80, while Elf closed €6.70 or 4 per cent higher at €172.70.

Amsterdam traded narrowly to close little changed. The AEX index ended off 0.09 at 572.33. KPN bounced following positive comment from Goldman Sachs in the wake of the telecoms leader's results analysts' meeting. The broker put earnings estimates and rating under review. The stock jumped €1.60 to €44.

Royal Dutch responded to the upward blip for international oil prices with a gain of €1.00 to €59.20. Madrid outperformed most other European markets with the general index adding 7.50 or 0.9 per cent at 887.97. The market was lifted by the strength of Telefonica, the biggest stock by market capitalisation, which climbed after releasing first-half results. The shares, up 3.5 per cent at one stage, retreated on profit-taking to close 15 cents or 1 per cent higher at 15.25.

Continente and Pryca, the supermarket groups, both failed to make further progress after gaining sharply this week on news that their French parent companies planned to combine. Continente fell 63 cents or 2.5 per cent to €24.50, while Pryca ended flat at €18.60.