A steadier day for the dollar in the foreign exchanges lent support to European bourses. The FTSE Eurobloc 100 index rallied 0.7 per cent at 1,086.85 and the FTSE Eurotop 100 index gained 1.2 per cent at 2,972.20. The broader FTSE Eurotop 300 index rose 1.2 per cent at 1,302.67.

Frankfurt rallied after two days of losses, adding 60.81 at 5,299.57 on the Xetra DAX index. Mannesmann stormed ahead on the news that the company planned to put its telecoms operations into a separate company. The announcement also revived vague takeover talk. The shares ended €11, or 7.8 per cent higher, at €152. Paris rose as telecommunications stocks rallied sharply. The CAC-40 index ended 33.12, or 0.7 per cent, up at 4,601.24, lifted by monthly settlement. France Telecom led the sector's rally, ending €3.20 higher at €80.70 on speculation that it might link with Mannesmann of Germany. Canal Plus, the media company, fell €1.50 to €63 after its first-half results and full-year outlook disappointed investors. Renault recovered €1, or 2.1 per cent, to close at €48.80.

Amsterdam rallied modestly, adding 1.35 at 565.48 on the AEX index. Aegon added €1.05 at €82.35 among financials. Electronics giant Philips rose €1.60 to €98.25, but the star performer among electronics shares was ASM Lithography which added €3.10, or 5 per cent, at €64.75.

Zurich was unable to hold on to all of its early gains after Wall Street opened but the SMI index still finished 47.8 higher at 7,056.8, off an intraday high of 7,106.2.

Madrid edged forward as Telefonica, the most heavily weighted stock by market capitalisation, provided the driving force. The general index ended 5.10 up at 873.27. Telefonica surged 26 cents to €15.41. Milan was higher on speculative buying in telecoms stocks linked to restructuring prospects. The Mibtel index finished 171 higher at 24,351. Telecom Italia, TIM and Olivetti were up on speculation that Olivetti would soon announce a wide-ranging reorganisation.