Deutsche Telekom and KPN led a rally by telecoms companies after strategists recommended investors increase their holdings in the industry. BHP Billiton and BP retreated as oil and metal prices dropped.

The Dow Jones Stoxx 600 Index added 0.1% last week.

The Stoxx 50 rose 0.7% and the Euro Stoxx 50, a gauge for the 13 nations using the euro, advanced 0.2%.

Stock markets were closed on Monday for the New Year holiday.

Merck advanced after the German pharmaceutical maker said it is considering the sale of its generic-drug unit.

Peugeot Citroen paced gains by carmakers, among the most sensitive to energy prices.

Markets erased some gains on the final day of the week after US employers added more workers than forecast, reducing the likelihood the Federal Reserve will cut interest rates in Europe's biggest trading partner.

Profit growth and a record run of takeovers helped the Stoxx 600 climb 18% in 2006. This year, analysts predict that companies in the index will boost earnings 8.6%, according to projections compiled by FactSet Research Systems. That would be the fifth consecutive year of profit growth.

National benchmarks rose in nine of the 18 western European markets. Germany's DAX slid 0.3% as did France's CAC 40 and the UK's FTSE 100.

Shares of Deutsche Telekom, the region's largest phone company, added 4.4%. KPN, the largest Dutch phone company, rallied 4.9%.

Equity strategists at Lehman Brothers, Goldman, Sachs and JPMorgan Chase put an 'overweight' recommendation on telecoms stocks in 2007 when they published outlooks for the new year in December.

BHP Billiton, the world's largest mining company, lost 5.4% as copper prices fell to a nine-month low.

Rio Tinto Group, the world's third-largest mining company by sales, retreated 7.8%.

Copper futures for March delivery tumbled 10% last week in London, the most since July, as slower economic growth in the US reduced demand for the metal. A measure of mining stocks had its biggest slump since June.

BPled energy companies lower as crude oil headed for its biggest weekly decline in New York since April 2005. Europe's second-largest oil producer, lost 1.9%, To t a l , the region's largest oil refiner, dropped 3.5%.

Oil has fallen more than 9% on the New York Mercantile Exchange this week as warmer weather in the US cut heating-fuel demand.

"The excitement for commodities is over for a while" one analyst said.

(Bloomberg)