Shares in Frankfurt began the week on a firm note thanks to good demand for bank stocks and a rally for technology leaders.

HypoVereinsbank rose €2.61 to €67.11 after SG Securities added the stock to its European model portfolio in a sector broadly underpinned by renewed merger talk.

Dresdner Bank, which pulled out of talks with Deutsche Bank earlier this year and Commerzbank last month, gained €2.95 to €53. Commerzbank added 88 cents at €38.90 and Deutsche Bank €2.84 at €97.43.

Among techs, Epcos rose €2.40 to €93.40 and Siemens €4.10 at €161.91. SAP improved €5.31 to €245.54.

Karstadt Quelle lost €1.26 at €31.54 amid speculation that the retailer could be dropped from the Xetra DAX index.

Paris ended higher as the tech-rich Nasdaq scored good gains in early dealings. The CAC-40 index rose 0.9 per cent to 6,519.04.

However, technology stocks were mixed. Communications equipment maker Alcatel, which fell back last week on worries about mobile phone prospects, continued to rebound, adding 2.7 per cent to €76.60. Telecoms company Equant was back on the rise, gaining 5.8 per cent to €43.90, buoyed up by continuing takeover hopes.

But STMicroelectronics was off 1.9 per cent to €58.50 and France Telecom fell 0.5 per cent to €135.60.

Societe Generale, which fell nearly 10 per cent last Thursday after reporting first-half earnings just slightly higher than expected, clawed back 4 per cent to €65.90. J.P. Morgan said SocGen was now "an attractive valuation" on a sum-of-the-parts basis.

Suez Lyonnaise des Eaux ended up 1.2 per cent at €174 on news that Morgan Stanley Dean Witter Private Equity and NTL Inc were buying France Telecom's 49.9 per cent stake in Noos, France's biggest cable television operator. Suez Lyonnaise owns the other 50.1 per cent. The deal values Noos at €2.7 billion excluding debts.

Amsterdam ended 7.12 higher at 680.57 on the AEX index after a strong run for selected blue chips.

Royal Dutch rose €1.28 to €65.58 and Unilever gained €1.45 to €54.15 on favourable weekend press reaction to the food and detergent giant's new operating format.

In financials, Aegon jumped €1.30 to €44 ahead of Thursday's results statement. KLM rose €1.70 or 5.9 per cent to €30.30 on hopes for a successful conclusion to the merger negotiations begun by the two airlines eight weeks ago.