* FTSEurofirst 300 up 0.1 pct, up 1.7 pct on week
* Deutsche Telekom, Bouygues, Iliad up on M&A talk
* More than $312 billion in European M&A year-to-date
* Europe stocks enjoy further inflows from U.S. funds
By Blaise Robinson
PARIS, May 2 European stocks gained on Friday, fuelled by takeover activity, as M&A speculation spread to the telecoms sector.
Deutsche Telekom was the top gainer among European blue-chips. It rose 1.9 percent on talk Sprint Corp has approached banks to work out funding for its bid for T-Mobile US Inc, which is majority-owned by the German telecom operator.
At 1418 GMT, the FTSEurofirst 300 index of top European shares was up 0.1 percent at 1,355.99 points. The benchmark index was set to post a weekly gain of 1.7 percent.
"The flurry of recent deals show a swing in sentiment from company managers. The fact that they are starting to buy means they have better visibility on the economy," said David Thebault, head of quantitative sales trading at Global Equities.
"For all the companies sitting on big cash piles, it's much faster to do acquisitions to boost their market share and improve revenue than to spend money in capital expenditure. This could be the beginning of a long wave of M&A, as valuations remain attractive."
French telecoms group Iliad rose by 5.1 percent and conglomerate Bouygues by 3.9 percent, boosted by the speculation. JP Morgan Cazenove analysts on Friday raised their rating on Bouygues to "overweight" from "neutral", factoring in a 50 percent probability of a combination with Iliad.
The STOXX Europe 600 Telecoms Index was up 1.3 percent, making it the best-performing equity sector in Europe.
Also on the M&A front, AstraZeneca shares rose 0.2 percent. The company rejected Pfizer's new indicative offer of 50 pounds per share, and some traders said Pfizer might have to raise its offer again up to the 55 pound level.
"Mid-50s is a level that Astra would be far more comfortable with," said Dafydd Davies, senior trader at London-based firm Prime Wealth Group.
AstraZeneca's share price has surged by around 26 percent since news of Pfizer's interest emerged in late April.
European shares started to rally this week as corporate deal-making outweighed sluggish company results. After range-bound trading in the past two months, shares have now recorded the best start to a year since 2008.
So far this year, M&A activity involving a European target has grown to more than $312 billion. That is more than double the value over the same period last year and the highest since 2008, according to Thomson Reuters data.
The week's rally in European stocks was also supported by brisk investment flows, with fresh money coming in from U.S. investors in the seven-day period ended April 30, data from Thomson Reuters Lipper shows. Since the start of the year, European stocks have seen 16 weeks of net inflows from the United States and only one week of net outflows.
The FTSEurofirst 300 is up 2.8 percent so far this year, Italy's FTSE MIB benchmark is up 15.2 percent and Spain's IBEX is up 5.8 percent. That compares with a 2.2 percent rise on Wall Street's S&P 500 and a 0.1 percent rise on the MSCI emerging markets index.
European M&A: link.reuters.com/qax88v
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
(Editing by Larry King)