Telecom Italia led telecommunications shares higher after its holding company received offers for a stake. Carrefour and Royal Ahold gained amid speculation that the retailers may be targets of takeovers by private equity "rms.

Europe's Stoxx 600 Index climbed 1.6% last week to 380.26.

The index closed on 19 February at a six-year high of 382.19. The Stoxx 50 gained 1.28% and the Euro Stoxx 50 added 2.2%. France's CAC 40 rose 1.9% while Germany's DAX jumped 2.6%. The UK's FTSE 100 advanced 1.16%.

Air France-KLM Group and British Airways paced gains by airlines as a drop in oil prices following Iran's release of British navy personnel increased optimism that fuel costs will decrease.

Mergers and takeover speculation have helped the Stoxx 600 recoup almost all of the losses from a sell-off that began in late February. So far this year, mergers in Europe have totalled $502bn, according to data compiled by Bloomberg. Deals reached a record $1.6 trillion in 2006.

Stocks rose even after reports showed that US manufacturing unexpectedly fell and service industries expanded at a slower rate, deepening concern that a housing crisis will sti"e growth in Europe's largest export market. A report on Wednesday said US factory orders rose in February at a slower pace than economists forecast.

Telecom Italia, Italy's largest phone company, surged 13% to 2.42. AT&T and America Movil each offered to buy a third of Olimpia, the holding company that controls Telecom Italia. The bid values the underlying shares at 2.82 each, 32% more than the previous closing price on 30 March.

Pirelli & C, Telecom Italia's largest indirect shareholder through Olimpia, jumped 7.6% to 89 cents.

France Telecom and Spain's Telefonica are each considering making an offer for Olimpia, the Wall Street Journal said last week, citing people close to the situation.

Carrefour, Europe's biggest retailer, reached a "ve-year high on Wednesday and jumped 4.4% for the week to 57.17. Colony Capital said the company could gain 30bn from selling property. That's more than what Carrefour says its realestate assets are worth.

Colony Capital founder Thomas Barrack, who bought 9.1% of Carrefour with French billionaire Bernard Arnault, said in an interview on 26 March that US private-equity "rms may target Carrefour in what would be Europe's biggest buyout.

Royal Ahold, the Dutch owner of the US Stop & Shop supermarket chain, climbed 3.8% to 9.08. The stock has gained in all but three of the past 16 days amid speculation about a possible merger with Belgium's Delhaize Group or interest from private equity group.

Novartis, Switzerland's largest drug maker, led declines in the Stoxx 50 for the week, losing 2.9% to 67.65 Swiss francs. The company stopped US sales of its Zelnorm irritable bowel syndrome treatment at the request of the FDA. A review of 18,000 patients indicated people taking the medicine had more heart attacks and strokes, the company said on 30 March.