Vodafone Group led European shares to fresh 18-month highs yesterday afternoon on relief the world's biggest mobile phone company had pulled out of a pricey takeover battle.

Vodafone shares rose five percent to 139-1/4 pence in twice the daily average volume on news it lost out to US rival Cingular, which paid $41 billion in cash to buy AT&T Wireless and become America's top cellphone firm.

The takeover cuts to five the number of operators in the United States, taking some pressure off Deutsche Telekom's T-Mobile USA, the smallest national carrier, analysts said. The deal also triggered upward revisions in mobile phone asset valuations.

"The long-awaited consolidation of the US mobile market appears to be finally happening. Notwithstanding some issues we regard DT as a net beneficiary of US market consolidation," Dresdner Kleinwort Wasserstein said in a note, upgrading its recommendation to "buy".

Deutsche Telekom shares rose 3.7 per cent to €16.4. Elsewhere in the sector, British Telecom gained 2.4 per cent to 177-1/2 pence, and Spain's Telefonica was up 1.45 per cent at €13.3. The broader European market was also buoyed by a strong media sector as France's Vivendi Universal rose.

Vivendi jumped five per cent on talk that cash-rich Vodafone may now make a grab for Vivendi's SFR mobile unit. Vodafone has long wanted to raise its 44-per cent stake in SFR to become the controlling shareholder.

Elsewhere in media, global news and information provider Reuters soared 13.5 per cent to its highest level since June 2002 as the group bounced back into the black to report annual profits well above market expectations.