Oct. 31 (Bloomberg) -- European stocks had their biggest advance in two years as companies proposed $36.6 billion of mergers, making this year the busiest for takeovers since 2000.

O2 Plc led gains after Telefonica SA agreed to buy the U.K. mobile phone operator in the largest acquisition in the European telecommunications industry for five years. Novartis raised its offer for the stake it doesn't own in the U.S. vaccine maker Chiron Corp. to $5.1 billion. Peninsular & Oriental Steam Navigation Co. surged after Dubai approached the company about an offer.

``There are a whole host of smaller businesses out there that need to consolidate,'' said Gary Dugan, chief investment officer at Barclays Investment Services in London, which manages about $98 billion. ``We're now seeing an environment where M&A deals can be done.''

ABN Amro Holding NV, the biggest Dutch bank, rose after the company posted a 35 percent gain in quarterly profit and raised its earnings forecast.

The Dow Jones Stoxx 600 Index added 2.4 percent to 290.28, the steepest gain since October 2003. The Stoxx 50 rose 2.3 percent and the Euro Stoxx 50, a gauge for the 12 countries using the euro, also increased 2.3 percent.

Stocks advanced after crude oil fell on speculation that fuel stockpiles will increase as warmer than normal weather cuts demand in the U.S. Northeast. Oil dropped 2 percent to $60 a barrel on the New York Mercantile Exchange.

Monthly Decline

The Stoxx 600 fell 2.4 percent in October, the largest monthly drop since March 2004. The measure has gained 16 percent this year. The Stoxx 50 has slipped 1.8 percent this month, for a 15 percent rise in 2005. The Euro Stoxx 50 is down 3.2 percent in October and has climbed 12 percent since December

Publicly traded companies in Europe have spent $513.5 billion on acquisitions during the first 10 months of 2005, 55 percent more than the same period last year, according to data compiled by Bloomberg. The value of transactions this year is the highest since 2000.

Spain's Telefonica agreed to buy O2 for 17.7 billion pounds ($31.5 billion) to grow in Europe and reduce its dependence on Latin America. Madrid-based Telefonica, the largest phone company in Spain and Latin America, offered 200 pence in cash per O2 share. The offer is 22 percent higher than the Oct. 28 closing price of 164.25 pence.

O2 shares rose 25 percent to 205.75 pence. Telefonica shares lost 2.3 percent to 13.31 euros.

Telenor, Vodafone

Telenor ASA, the Norwegian telecommunications company, agreed to buy Vodafone Sweden for an enterprise value of 1.04 billion euros ($1.25 billion) from Vodafone Group Plc. Vodafone Sweden is the third-largest mobile-phone company in Sweden, with 1.5 million subscribers and a market share of about 15 percent, Oslo-based Telenor said in a statement on Hugin. Telenor shares added 7.6 percent to 63.5 Norwegian kronor.

DP World, a ports company owned by the Dubai government, is in talks to buy P&O, people familiar with the negotiations said. The U.K.'s largest ports operator has a market value of 2.3 billion pounds. In a statement yesterday, P&O said it had received ``a very preliminary contact'' from a company it didn't identify. P&O shares jumped 30 percent to 404 pence.

Associated British Ports Holdings Plc, an operator of ports in the U.K., rose 4.9 percent to 547.75 pence.

All Industries Rise

All 18 industry groups in the Stoxx 600 rose. The Telecommunications Index rose the most, adding 3.3 percent. The Industrial Goods & Services Index added 2.8 percent.

National benchmarks climbed in all 18 of the Western European markets except Iceland. Germany's DAX Index gained 2.1 percent, while France's CAC 40 Index added 2.5 percent. The U.K.'s FTSE 100 Index rose 2 percent.

Novartis, Europe's second-largest drugmaker by market value, rose 2.2 percent to 69.35 euros, after agreeing to buy Chiron for $45 a share in cash after its first offer was rejected as ``inadequate.''

Novartis, which owns 42.2 percent of California-based Chiron, is offering about $5.1 billion for the 113 million shares it doesn't own in the U.S. vaccine maker which is recovering from a manufacturing shutdown. Chiron rejected its Sept. 1 offer to buy the remaining shares for $40 each.

Pilkington Plc climbed as much as 26 percent to 159.5 pence, the most in 18 years. Nippon Sheet Glass Co., a Japanese glassmaker, said it made a takeover approach for Pilkington, the world's second-largest maker of glass for the construction industry. It didn't say how much it might be prepared to offer for shares of the U.K. company it doesn't already own.

Compass Buyout

Compass Group Plc added 5.3 percent to 190 pence. Advent International Corp., a U.S. buyout firm, is considering making a bid for Compass, Business newspaper reported, without saying where it got the information.

Advent is probably too small to bid on its own, and may team with French catering company Elior SCA and investment firm Clayton Dubilier & Rice Inc. to make the offer, the paper said.

ABN Amro said third-quarter profit rose 35 percent to 1.2 billion euros ($1.45 billion), helped by an increase in earnings at the Brazil unit and proceeds from the sale of the Real Seguros business. That beat the 812 million-euro median estimate of eight analysts surveyed by Bloomberg News. ABN Amro said it expects second-half profit to be at least equal to the first half's, changing an August prediction it would fall. ABN Amro shares added 3.2 percent to 19.73 euros.

`Slightly More Positive'

``The numbers we have seen have been slightly more positive than I expected,'' said Manu Koskiniemi, who manages a European stock fund at Mandatum Asset Management in Helsinki. Mandatum manages a total of 21 billion euros. ``They gave self confidence back to the market. Short-term there will be nice opportunities to get in.''

Erste Bank AG, Austria's second-biggest bank, added 3.5 percent to 43.40 euros. It said third-quarter profit rose 38 percent 173.1 million euros as retail customers in eastern Europe took out more loans and spent money using credit cards. Profit beat the 170 million-euro median estimate of seven analysts surveyed by Bloomberg News.

Linde AG, Germany's largest maker of industrial and medical gases, rose 2.2 percent to 59.55 euros. Third-quarter profit climbed 57 percent to 118 million euros, boosted by demand from customers in health care as well as engineering work.

BP Plc, Europe's biggest oil company, rose 1.1 percent, to 624 pence. The company said on Oct. 28 after markets closed that it may cut about 2,500 jobs, or 9 percent of its workforce, in its European refining and marketing unit to boost efficiency. The unit presently employs about 28,000 people. The shares gained 4 pence, or 0.7 percent.

Statoil, Vivendi

Statoil ASA, Norway's largest oil company, rose 4.9 percent to 145.5 kroner after it said third-quarter profit gained 49 percent to 8.68 billion kroner ($1.34 billion) because of higher oil and gas prices and increased production.

Vivendi Universal SA, owner of France's No. 2 mobile-phone company, rose 3.6 percent to 26.28 euros. Barron's reported shares in the company are likely to rise, spurred by the company's Universal Music Group, telephone business and its VU Games division.

Potential ``catalysts'' for the stock include Vivendi selling its stake in mobile-phone company SFR to Vodafone Group Plc, the sale of Vivendi's 18.5 percent stake in NBC Universal and the possible merger of Vivendi's Canal Plus satellite operations with competitor Lagardere SCA's TPS satellite business, Barron's said.

Altana AG, a German drugs and chemicals maker controlled by the billionaire Quandt family, rose 3.8 percent to 47 euros after the company said it may sell the pharmaceuticals business because of drug-development delays.

The company hired Goldman Sachs Group Inc. to explore strategic options for the business, spokesman Thomas Gauly said yesterday, confirming a report in the Financial Times Deutschland that cited a letter by Chief Executive Nikolaus Schweickart to employees. All options regarding the future of the business are still open, Gauly said.

To contact the reporter on this story: Sophie Hares in London at shares@bloomberg.net.

Last Updated: October 31, 2005 12:03 EST