May 29 (Bloomberg) -- European stocks rose for the first time in three days after a sales forecast from Vodafone Group Plc lifted phone companies and analysts recommended investors buy shares of Royal Philips Electronics NV and IMI Plc.

Vodafone, the world's largest mobile-phone company, climbed to its highest in more than five years after predicting emerging- market growth that may push revenue above analysts' estimates. Deutsche Telekom AG, Europe's biggest phone company, and Royal KPN NV also gained.

``We're starting to look at telecommunications companies,'' said Romain Boscher, a fund manager at Groupama Asset Management in Paris, which oversees $115 billion in assets. ``They've always been attractive in terms of dividends.'' He recently bought shares of France Telecom and Deutsche Telekom.

European indexes extended gains after the Conference Board's index of consumer confidence for the U.S., the world's biggest economy, rose more than forecast in May, climbing to 108.0 from a revised 106.3 in April.

The Dow Jones Stoxx 600 Index last week advanced to its highest since September 2000, boosted by better-than-expected earnings and increasing takeovers.

Two-thirds of the 39 companies in the Stoxx 50 that have reported earnings or sales have surpassed analysts' estimates. The value of mergers and acquisitions in Europe has reached $1.23 trillion in 2007, according to data compiled by Bloomberg.

The Stoxx 600 added 0.2 percent to 394.39. The Stoxx 50 also gained 0.2 percent, and the Euro Stoxx 50, a measure for the 13 nations sharing the euro, rose 0.3 percent.

Vodafone

GlaxoSmithKline Plc limited gains after its diabetes drug Avandia fell out of favor with some U.S. doctors. Aeroports de Paris SA sank after JPMorgan, Chase & Co. cut a recommendation on the airport operator.

National benchmarks gained in 10 of the 18 western European markets. France's CAC 40 slid 0.3 percent. The U.K.'s FTSE added 0.6 percent. Germany's DAX rose 0.5 percent.

Vodafone climbed 5.5 percent to 159.7 pence after forecasting fiscal 2008 sales will be 33.3 billion pounds to 34.2 billion pounds. That compares with a 33.5 billion-pound average estimate of 29 analysts surveyed by Bloomberg News.

The company increased its full-year dividend by 11 percent to 6.76 pence, more than some analysts had expected. UBS AG raised the share-price estimate to 175 pence from 170 pence.

``We are especially impressed with the dividend payout,'' Jim McCafferty, head of research at Seymour Pierce in London, wrote in a note to investors. ``There are few stocks in the FTSE 100 which offer such attractive dividend growth coupled.''

`Good Outlook'

Telecom shares gained the most among the 18 industry groups in the Stoxx 600 today. Deutsche Telekom rose 1.8 percent to 13.65 euros. KPN added 1.2 percent to 12.62 euros.

``The earnings season has passed with a lot of companies confirming a good outlook for profit next year,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $14 billion.

Philips gained 1.5 percent to 30.78 euros. Europe's largest maker of consumer electronics was added to Lehman Brothers Inc.'s ``European Recommended Portfolio.'' Lehman analysts cited the July 23 expiry of the lock-up on Philips' stake in LG Philips.

IMI jumped 2.2 percent to 597.5 pence. Citigroup Inc. raised its recommendation on the world's biggest maker of pneumatic controls to ``buy'' from ``hold,'' citing a positive outlook for the environmental division.

``As long as the global capital goods cycle continues to develop favorably, this business should continue to do well,'' the analysts wrote in a note.

Invensys, Glaxo

Invensys Plc, whose controls help run thermostats and Whirlpool washing machines, soared 6 percent to 393 pence. The company had its share recommendations upgraded by Goldman Sachs Group Inc. and HSBC Holdings Plc after cost cuts helped improve profitability.

Goldman raised its Invensys rating to ``neutral'' from ``sell'' and increased its 12-month share-price target to 365 pence from 280 pence. HSBC raised Invensys to ``neutral'' from ``underweight.''

Glaxo lost 2.1 percent to 1,306 pence. Avandia's share of new prescriptions for oral diabetes treatments fell to about zero from 10 percent in the two days after a May 21 report in the New England Journal of Medicine, Deutsche Bank analysts wrote, citing data from market research firm Impact Rx.

The New England Journal article said users of Avandia, the drugmaker's second-best-selling medicine, were 43 percent more likely to have a heart attack than those given other drugs.

RBS, Barclays

ADP, owner of the French capital's Charles de Gaulle and Orly airports, slid 2.7 percent to 84.25 euros. JPMorgan lowered its recommendation on the stock to ``underweight'' from ``neutral.''

The analysts wrote in a note that they see ``downside risk'' for the shares ``if a state sale or a premium bid doesn't materialize in the next six months.''

Royal Bank of Scotland Group Plc slipped 0.8 percent to 637.5 pence. Royal Bank, Santander Central Hispano SA and Fortis offered 71.1 billion euros ($95.6 billion) for ABN Amro Holding NV, trumping Barclays Plc in the largest banking takeover. Barclays shares added 1.9 percent to 733.5 pence.

British Airways

British Airways Plc, Europe's third-largest airline, jumped 4.7 percent to 482.5 pence on speculation the company may attract a private-equity bid.

Goldman Sachs said on May 17 the airline may be a takeover target for private-equity groups.

``The stock is recovering some lost ground and speculation about a private-equity bid may be a factor in that,'' said Gert Zonneveld, a Panmure Gordon analyst in London who has a ``hold'' rating on the stock.

British Airways spokeswoman Laura Goodes said the airline declined to comment.

Synthes Inc., the world's largest maker of artificial devices to mend broken bones, sank 2.3 percent to 154.2 Swiss francs. The U.S. health program for the elderly and disabled said it may not pay for spinal disc replacements in people over the age of 60. Medicare, which outlined its position in a memo, will make a final decision on health coverage for the procedure in August.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

Last Updated: May 29, 2007 12:12 EDT