Wall Street's early buoyancy helped Frankfurt climb back above the 5,000 level for the first time in more than two weeks. The Xetra DAX index ended 124.90 higher at 5,012.60 after reaching a session best of 5,039.68.
Talk that Deutsche Telekom was a hot favourite to counter Olivetti's contentious €53 billion takeover bid for Telecom Italia sent the German giant up to €42.20 before closing €2.39 higher at €41.89.
Mannesmann added €4.60 at €129.30. RWE pleased the market with a strong earnings statement and shares in the utility rose 92 cents to €39.72.
Deutsche Bank hardened 32 cents to €47.50 in spite of continuing media focus on the prospect of flat earnings for 1998. Most other financials gained ground. Allianz rose €12.5 to €285. Munich Re advanced €6.60 to €185.6.
Steel groups Thyssen and Krupp both pushed ahead, adding €2.26 to €176.50 and €4.10 to €134.50 after the companies scotched rumours their planned merger had hit problems by announcing the deal would go ahead soon after the March 1st deadline.
Paris took its cue from confident markets in the US and Europe to end 1 per cent higher. The CAC-40 was up for the fourth day running, adding 42.09 to 4,207.95.
Air France continued to rise on its second day of trading, gaining €1.60 or 9.9 per cent to €17.70. Canal Plus soared after it confirmed that it was in talks with Mr Rupert Murdoch's empire and other media players on a European alliance. But shares later retreated after analysts warned any alliance would come under close scrutiny by competition regulators in Brussels. The stock ended €1.20 lower at €293.80.
L'Oreal, up €7.50 to €607.50, and Sanofi, €7.10 higher to €162.10, gained as both companies were expected to post healthy results this week. But profit-taking took the shine off BNP, down €2 to €75.50, and Carrefour, off €7 to €627.
Amsterdam ended 8.38 higher at 536.69 on the AEX index after a session boosted by confirmation that Unilever planned an $8.1 billion (E&.4 billion) special dividend. The foods and detergents giant surged to €73.60 early on as buyers took their cue from a strong earnings statement and an upgrade from SG Securities. The stock ended up €1.20 at €69.50.
Milan followed Wall Street lower late in the session and the Mibtel index finished 25 weaker at 24,122, off a high of 24,308.
The telecoms sector remained at the centre of attention. Olivetti eased six cents to €2.91 as it sought to salvage its $58 billion (€53 billion) bid for Telecom Italia. And Telecom Italia was 31 cents easier at €9.56 as the would-be prey built up its defences.
