LONDON: European shares bounced back from one month lows on Monday, led higher by gains in defensive stocks, but telecoms fell after talks between Orange and Bouygues on creating a dominant French operator collapsed.
Shares in French group Bouygues slumped almost 15 percent to 30 euros and were heading for their worst day in 17 years.
The STOXX Europe 600 Telecommunications index was down 0.3 percent after hitting a one-month low following the failure on Friday of the proposed 10 billion euro cash-and-share deal.
Orange was down 4.2 percent. Other French telecom firms also dropped sharply, with Iliad, SFR and Altice all down by more than 14 percent.
The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecoms groups to three from four in France and prop up profits, which have been depressed since the arrival of low-cost operator Iliad.
Berenberg downgraded Bouygues to "sell" and cut its target price for the stock to 30 euros from 40 euros.
"We believe that this was one of the last chances for consolidation within the French telecoms market. France will remain a competitive four-player market, with a high capex burden as the market moves to fibre," Berenberg analysts said.
Choppy market conditions prompted investors to buy defensive stocks, with the European utilities index gaining 1.3 percent and the healthcare index up 1.5 percent.
German utility RWE rose 3.6 percent, helped by an upgrade by Societe Generale to "buy" from "hold".
The pan-European FTSEurofirst 300 index was up 0.89 percent by 0957 GMT after falling 1.5 percent to a one-month low in the previous session. The index is down about 7 percent this year.
However, a Reuters poll predicted on Friday that European shares will rise 8 percent from present levels to the end of 2016, with the European Central Bank's supportive monetary policy and the region's improving economic outlook seen helping riskier assets.
The poll also showed that Britain's benchmark equity index will not make much, if any, progress for the rest of 2016, due to uncertainty over the country's vote on European Union membership and fears of a global slowdown.
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