European markets drove higher, helped by a renewed outbreak of merger rumours and a strong opening on Wall Street.

Frankfurt gained 3.1 per cent or 237.64 at 7,932.42 on the Xetra Dax index after a busy session for power utilities. The performance comfortably recovered the 104 points lost on Thursday and allowed the benchmark to end the week with a net gain of 2.9 per cent.

A German press report that merger partners Viag and Veba were in discussions with French utility Suez Lyonnaise des Eaux sent the two German groups smartly higher from the opening bell.

Veba ended €2.45 higher at €50.65 while Viag gained €1.05 at €20.25 rises of more than 5 per cent in each case in combined trading volumes of 6.3 million shares.

DaimlerChrysler added €1.89 at €70.20 ahead of Monday's news conference which is widely expected to spell out the terms of the motor giant's interest in Japan's Mitsubishi Motors. Techs group Epcos, a weak market in recent sessions, swung dramatically higher, advancing 22.4 per cent or €27.4 to €149.99.

Paris ended higher as a late drive by France Telecom and another flying start by the Nasdaq helped produce some solid gains. Telecom rose €8 to €191, Canal Plus €20 to €270.50, STMicroelectronics €10.90 to €205.90 and Lagardere €2.90 to €84.50. Suez Lyonnaise des Eaux rose €2.20 to €181 on talk that it may merge with two German utilities. The CAC index advanced 1.5 per cent or 95.95 to 6,364.26.

Amsterdam rose 11.59 to 683.48 on the AEX index with powerful runs at telecoms leader KPN and bank ABN-Amro providing most of the upside drive. Hopes that it could shortly clinch the purchase of mobile phone group Orange sent KPN up €9.65 or 7.8 per cent at €132.70. ABN gained 65 cents to €23.47.

Milan was sharply higher as media and telecoms stocks found renewed favour. The Mibtel index jumped 860 or 2.7 per cent to 32,946.