Sept. 7 (Bloomberg) -- Stocks rose for a third day as Kraft Foods Inc.’s $16.7 billion offer for Cadbury Plc spurred speculation mergers will increase and the Group of 20 nations pledged to bolster the economy. The yen fell.

The MSCI World Index of 23 developed countries advanced 0.9 percent, while U.S. and Canadian markets were closed for Labor Day holidays. The yen weakened against 15 of the 16 most-traded currencies.

“Financial markets are stabilizing and the global economy is improving, but we remain cautious about the outlook for growth and jobs,” the G-20 said after its weekend meeting in London. Companies from London-based Cadbury, the world’s largest confectioner, to Singapore’s state-controlled Chartered Semiconductor Manufacturing Ltd. were targeted for takeovers as the world recovers from its first recession since World War II.

The G-20 “will err on the side of caution,” said Lucy MacDonald, chief investment officer of equities at RCM UK Ltd. in London. “Confidence in the corporate sector has risen off the floor,” she said in a Bloomberg Television interview. “We’d expect to see M&A picking up from relatively low levels.”

The Dow Jones Stoxx 600 Index of European shares rose 1.4 percent as all 19 industry groups advanced.

Cadbury surged 38 percent in London after rejecting Kraft’s bid of 10.2 billion pounds ($16.7 billion). The offer of 300 pence in cash and 0.2589 new Kraft share per Cadbury share values the confectioner at 745 pence a share, 31 percent above last week’s closing price. Cadbury said the bid “fundamentally undervalues” the company.

T-Mobile for Sale

Deutsche Telekom AG climbed as much as 3 percent in Frankfurt. Europe’s biggest telephone company and France Telecom SA agreed to merge their U.K. units to form the country’s largest mobile-phone operator, Dow Jones said, citing unidentified people with knowledge of the transaction.

The accord would end months of speculation during which Deutsche Telekom had been expected to sell or fold its U.K. unit into a joint venture. An announcement on the deal is expected to be made tomorrow, Dow Jones said. Deutsche Telekom spokeswoman Anna Bischof and France Telecom spokesman Tom Wright declined to comment.

The MSCI Asia Pacific Index climbed 1.3 percent as Abu Dhabi agreed to buy Singapore’s state-controlled Chartered Semiconductor for S$2.5 billion ($1.8 billion).

Labor Day

Futures on the Standard & Poor’s 500 Index increased 0.8 percent, indicating the benchmark gauge for U.S. equities may advance for a third straight day when markets open tomorrow after today’s Labor Day holiday.

The MSCI Emerging Markets Index gained to the highest in a year, rising 1.4 percent. Lithuania’s OMX Vilnius index surged 5.7 percent to lead developing-market indexes. The MSCI Latin America Index advanced 0.6 percent. Mexico’s Bolsa gained for a fourth day while Brazil was closed for a public holiday.

The Shanghai Composite Index rose for a fifth day, adding 0.7 percent, after China’s government lifted the amount foreign funds can invest in equities.

Government bonds fell in Asia after G-20 officials said it would be premature to start unwinding stimulus measures designed to buoy the global economy. G-20 countries have committed $12 trillion to help pull the world out of recession, according to the International Monetary Fund.

The Japanese 10-year yield climbed 3 basis points to 1.34 percent. The U.S. Treasury plans to sell $70 billion of three-, 10- and 30-year securities this week.

Yen, Australian Dollar

The yen dropped 1.2 percent against the Canadian dollar and 0.8 percent compared with the New Zealand dollar. Australia’s dollar climbed to its highest level in a year versus the U.S. currency.

Industrial metals gained on the London Metal Exchange as copper rallied for a third day and lead extended its advance to $2,350 a metric ton, the highest price since May 2008. Gold for immediate delivery rose 0.1 percent to $995.25 an ounce, after posting its biggest weekly gain since April last week. Gold was last above $1,000 on Feb. 20.

Crude oil for October delivery traded little changed at $68 a barrel in electronic trading on the New York Mercantile Exchange after rising as much as 1.3 percent. All 26 analysts in a survey by Bloomberg News predicted the Organization of Petroleum Exporting Countries will maintain its production target at 24.845 million barrels a day at a Sept. 9 meeting in Vienna.

The cost of three-month loans in dollars between banks declined for a 14th straight day, according to the British Bankers’ Association. The London interbank offered rate, or Libor, for such loans dropped more than half a basis point to 0.309 percent. The Libor-OIS spread, a gauge of bank reluctance to lend, narrowed 1 basis point to 13 basis points.

To contact the reporters on this story: Daniel Hauck in London at dhauck1@bloomberg.net. James Attwood in Santiago at jattwood3@bloomberg.net;

Last Updated: September 7, 2009 16:37 EDT