Sentiment was also helped by expectations that Wall Street was set to bounce when it reopens after Friday's sharp selloff and Monday's closure for a public holiday.

S&P; stock index futures were up 4.70 points.

Anglo-Dutch Unilever, the world's largest consumer goods group, said it will eliminate 25,000 jobs, or 10 percent of its work force, over the next five years as part of a massive restructuring aimed at reinvigorating a sluggish top line.

Unilever and other "old economy" companies such as Cadbury Schweppes last week, were restructuring to attract investors whose attention was focused on "new economy" digital darlings such as techs and telecoms, analysts said.

"They have to try to attract attention especially in an environment when these old economy companies are beaten up," said Matt Dennis, European equity strategist at ABN AMRO.

"Whether these companies can deliver on these announcements, it will be interesting to see."

Vodafone AirTouch led the telecoms pack as the world's biggest mobile phone company leapt nearly 10 percent after announcing it now owned enough of Mannesmann to assimilate all the German company's market capitalisation, thus allowing tracker funds to increase their holdings in Vodafone.

Deutsche Telekom rose 2.7 percent on news it was negotiating to sell its cable television businesses in five of its nine national regions and expects deals by end-March. It also said the company needed to rapidly increase its size by merger or acquisitions.

The Eurotop 300 index was up 0.64 percent, while the Euro STOXX 50 index gained 0.92 percent.

Analysts also said a perkier euro was also helping euro zone sentiment. The single currency was back at parity with the dollar for the first time in four weeks.

Shares in Deutsche Bank, Germany's largest commercial bank, rose 5.14 percent after whetting investors' appetite on Monday with the announcement of a sweeping plan to take its entire business onto the Internet.

Lufthansa rose 3.90 percent after the Financial Times reported that the German airline and Deutsche Post were negotiating to merge their freight businesses.

Lufthansa chief executive Juergen Weber would not confirm the report, but said both companies were working together in the night-plane network.

Finnish-Swedish papermaker Stora Enso slid 8.4 percent after announcing it would acquire U.S. Consolidated Papers for 4.9 billion euros, including debt. Some analysts said the deal made sense long term, but looked expensive in the near term.

Although the overall market was in positive terrain, many sectors were weaker, with energy, basic producers, consumer non-cyclicals, insurers, media, pharmas, chemicals and banks all down.

Analysts are also becoming nervous about valuations in the growth sectors of techs, media and telecoms or TMT.

Salomon Smith Barney's European strategist, Mark Howdle, long a bull on techs and telecoms, said TMT valuations were losing touch with the market mother-ship.

"It may still be too soon to call the top, but after such a steep and rapid valuation divergence, an extra degree of caution towards the TMT sectors now seems warranted," Howdle said.

WestLB Panmure in Duesseldorf said equity markets were in a euphoric speculative bubble and that the new economy could not explain all of the high valuations in growth stocks. WestLB said it was retaining its bias to cyclical stocks.