Europe's FTSEurofirst 300 index jumped 2.1 per cent to 1,198.6 points yesterday, thanks to a flurry of takeover activity, strong oil and banking earnings and a sharp opening on Wall Street.

The index rose 24.6 points and was on course for its biggest one-day points gain since April 7, 2003, when bourses were buoyed by hopes the Iraq War would end quickly.

European shares had suffered through late last month as some weaker than expected earnings and interest rate fears hurt.

"I think most people thought the market fall was somewhat overdone and when you've got bid interest coming in like this it's just natural," said Stuart Fraser at private client stockbroker Brewin Dolphin.

Among domestic indexes, France's CAC 40 was Europe's best performer, rising 2.3 per cent, with Germany's DAX up two per cent and Britain's FTSE 100 1.9 per cent firmer.

British mobile telecoms network operator O2 was Europe's top blue-chip gainer, surging 25 per cent after Telefonica's £17.7 billion offer.

Dutch peer KPN was five per cent higher after saying it was not planning a counter-bid.

UK building materials firm Hanson rose after mid-cap British glassmaker Pilkington shot up following an approach from Nippon Sheet Glass.

British catering firm Compass also added five per cent after weekend press reports of further private equity interest.

Dutch bank ABN AMRO and Norwegian oil firm Statoil also rose strongly on robust earnings, further boosting indexes as they forced sector peers higher.

The Dow Jones industrial average in New York added 68 points to 10,470.1 points as takeover activity there also boosted sentiment.