By Genevieve Butler

PARIS, Mar 6 (Reuters) European stocks rose on Monday as Germany's Linde soared as it clinched a deal to buy rival BOC, while talk of a special dividend from Vodafone, and AT&T buying BellSouth boosted telecoms.

Italy's Generali soared 7 per cent, and lifted insurers, 1.5 per cent after it beat its own 2005 targets and said it will buy out minorities in its German, Austrian and Swiss units.

''Again it's all driven by mergers and acquisitions activity, and telecoms are in the limelight,'' said Simon Jeffries, head of sales trading at ING Barings.

By 1230 GMT (1800 IST), the pan-European FTSEurofirst 300 index was 0.8 per cent stronger at 1,352.8 points, after hitting a two-week low of 1,335.1 last Friday.

The market has stalled in the last few sessions after hitting a string of 4-1/2-year highs. The index is however still up 6 per cent so far this year on robust earnings reports and a spate of mergers and acquisitions.

Across Europe, London's FTSE 100 gained 1 per cent to reach its best levels since June 2001, while Paris's CAC 40 and Frankfurt's DAX added 0.8 per cent and 0.6 per cent respectively.

Linde rose 6.5 per cent after its 8.2 billion pound takeover of BOC vaulted it to top spot in the industrial gases market alongside France's Air Liquide. Shares in BOC, which have rallied sharply this year in anticipation of a deal, were 0.3 per cent lower.

Europe's biggest bank HSBC Holdings advanced 1.5 per cent after it reported pretax profit of billion, above average analysts' forecast and a record profit for a UK bank.

''The reporting earnings season is bringing increasingly more positive than negative surprises,'' said Charles Dautresme, S&P Equity research strategist, in a note.

TELECOM SURGE Vodafone rallied more than 4 per cent, adding to Friday's 8-per cent jump on news the UK mobile phone company was in talks to sell a controlling stake in its struggling Japanese unit.

Newspapers reported that Vodafone plans to pay shareholders a 5 billion pound special dividend following any sale of a stake in its Japanese operations.

''It is sensible for Vodafone to look to exit Japan as soon as possible. Market revenues are structurally ex-growth,'' JP Morgan analysts said in a note.

''Proceeds speculated in the press would imply a very creditable outcome for Vodafone given its pressing need to exit Japan and generate positive news flow,'' they said.

The DJ Stoxx European telecoms sector index rallied 2.5 per cent.

BT gained 3 per cent after Business Online reported a consortium of private equity firms including Blackstone, Macquarie Bank and Kohlberg Kravis Robers, is mulling a 25 billion pound bid for it.

France Telecom, Telecom Italia and Deutsche Telekom all rose about 2 per cent.

KPN jumped 4.5 per cent to 9.29 euros following Chief Executive Ad Scheepbouwer's comments in a magazine stating that the Dutch telecoms group is undervalued and is worth more than 9 euros per share.

''To start with, the value is higher than 9 euros, because there is much hidden value. Above the true value, there has to be a premium, then it's possible to talk to us,'' Scheepbouwer was quoted by the magazine of small shareholders association VEB.

''If you look at takeovers in recent years, the premiums paid were between 25 and 60 per cent,'' he said.

Among the losers, shares in Bayer fell nearly 4 per cent after the drug and chemical company's fourth-quarter operating profit came in below analysts' average estimates.

Consumer goods giant Univeler and German retailer Metro both slid around 1 per cent.

''Metro and Unilever are a tad weaker in a stronger market,'' said ING Baring's Jeffries.

REUTERS SD HT1957