A strong run from bank shares sparked a rally in Frankfurt which fell 180 points on the Xetra DAX index over the final three sessions of last week.

A renewed outbreak of sector consolidation talk, including the possibility of counter bids for merger partners Commerzbank and Dresdner Bank, drove banks higher.

Commerzbank and Dresdner announced exploratory merger talks earlier this month. Press reports yesterday suggested several other European financial institutions could be casting covetous eyes at the pair.

There were instant denials from Spain's BSCH banking giant and Italian insurer Generali, but these failed to totally subdue the excitement in the sector.

Commerzbank rose €1.01 to €38.70 and Dresdner Bank 20 cents to €42.35. HypoVereinsbank added €2.40 at €65.40 and Deutsche Bank €1.32 at €84.71.

Chemicals groups BASF and Schering were also in demand. The former added €1.04 at €40.47 and Schering €1.85 at €56.65.

Deutsche Telekom added 14 cents at €63.64 and its T-Online internet unit 50 cents at €36.85 on the news that the latter had abandoned takeover talks with Freeserve of the UK.

At 5.30 p.m. German time the Xetra DAX index was up 48.34 at 7,028.75.

Paris closed higher thanks to fresh buying tied to the start of the new trading month. After breaking through 6,600 on the CAC 40, the blue-chip index fell back to end at 6,586.26, a gain of 0.6 per cent, or 40.91.

Advancing stocks led falling ones by 25 to 10, although volume was thin on the eve of the US interest rate decision tomorrow.

The slump in Amazon.com last Friday seemed to leave technology-related stocks largely unaffected.

Computer services provider Cap Gemini was up 2.2 per cent at €188, recovering a little of its 6.7 per cent loss on Friday on a downgrade by UBS Warburg and market rumours the company might lower its profit outlook.

Amsterdam rose 3.29 to 686.01 on the AEX index with an 8.8 per cent advance for UPC providing the day's top feature.