Olivetti's bold $58 billion (€52.76 billion) bid for its bigger rival, Telecom Italia, the former state monopoly, set bells ringing in European telecoms.
Telecom Italia initially soared more than 11 per cent as investors ramped the shares up above the 10 offered by Olivetti.
By the close, Telecom Italia was 82 cents higher at €9.86 while its subsidiary, Telecom Italia Mobile, closed 37 cents ahead at €6.13, off a day's high of 6.32. Goldman Sachs, which raised its recommendation on Telecom Italia, also upped its price target to 12.
Olivetti ended an unusually strong run for a takeover predator with a slide of cents to €2.97 in huge volume of 163 million shares as investors awaited details of its planned capital increase.
Germany's Mannesmann rose 4.10 to €124.70 after the group said on Sunday it had agreed to buy stakes held by Olivetti in two Italian telecoms groups if the bid for Telecom Italia were successful.
Spain's Telefonica, seen as a good acquisition target because it is fully floated but undervalued, put on €2.17 to €41.75. Portugal's Telecom, another target for consolidation, was 81 cents higher at €45.51.
KPN Telecom in the Netherlands rose €2.55 to €45 with merger speculation stirred by comments by Mr Wim Dik, chairman, that implied the company was too small to survive alone.
Elsewhere, telecom companies not regarded as takeover candidates overcame early weakness. Deutsche Telekom put on 36 cents to €39.50 and France Telecom collected 10 cents to €83.
Milan saw a rapid take-off by Alitalia after reports the airline and its partner, KLM, were in talks with Air France about an alliance. The shares closed up 41 cents at a day's high of 3.50.
Frankfurt rose 64.44 to 4,887.70 on the Xetra Dax index after a late surge on the back of early gains on Wall Street.
Allianz gained €2.40 to €272.50 ahead of tomorrow's results statement and RWE, which puts out annual figures today, added 83 cents to €38.80. Reporting on Thursday, Hypo-Vereinsbank eased 51 cents to €51.84.
Paris staged a late rally, ending 0.9 per cent higher after spending the day in negative territory. The CAC-40, up 35.38 to 4,165.86, was rescued by Air France's soaring debut.
Shares in the partly privatised airline, representing 20.7 per cent of the company's equity, closed at a sharp premium to the €14 offering price for individual investors and €14.20 for institutional investors ending at €16.10.
Trading was volatile and the stock repeatedly suspended after hitting its higher and lower limits. Demand for Air France shares piled up in the morning, with the grey market briefly posting a 3,000 per cent premium minutes before the listing began.
