They said mergers and acquisition activity had always been a key driver for sentiment and so Kraft's near $US17 billion ($19.97 billion) offer for Cadbury gave investors a real boost.
The fact that Cadbury rejected the bid as too low was only positive, encouraging speculation about a bidding war for the company and a wider shake-up in the snacks and confectionery industry, they added.
The underlying tone was solid, supported by gains in Asian trade earlier after a strong performance on Wall Street on Friday following the US August employment report.
Dealers said the Group of 20 finance ministers' meeting in London at the weekend was taken positively, especially the commitment made to maintain current stimulus plans so as to ensure the recovery is followed through.
Trade was subdued as Wall Street was closed for the Labour Day public holiday.
In London, the FTSE 100 index of leading shares jumping 1.68 per cent to 4,933.18 points. In Paris, the CAC 40 gained 1.50 per cent to 3,652.83 points and in Frankfurt the DAX rose 1.47 per cent to 5,463.51 points.
Cadbury soared some 40 per cent on news of the Kraft bid, equal to 745 pence per share, and its rejection.
"Traders seem to be happy to speculate that a revised offer could well be forthcoming," said David Jones, chief market strategist at financial betting firm IG Index.
It was good news after 18 months of little activity, seen by many as marking another step on the return to normality, Jones said.
"We believe that Kraft will need to up its offer to have any serious chance of success, perhaps to 800 pence in cash or higher," said Jeremy Batstone-Carr, an analyst at the Charles Stanley brokerage.
City Index market strategist Joshua Raymond said the takeover raised hopes that merger and acquisition "activity will start to pick up".
Cadbury closed the day at 783 pence, up 37.85 pence.
Elsewhere in Europe, Amsterdam advanced 1.79 per cent, Brussels rose 1.78 per cent, Madrid was up 1.48 per cent, Milan put on 1.57 per cent and Swiss stocks gained 1.03 per cent.
Earlier in Asia, Tokyo's Nikkei-225 index ended a three-day losing streak with a gain of 1.31 per cent, Hong Kong added 1.53 per cent and Sydney put on 0.43 per cent.
The Chinese markets were firmer after more encouraging words from officials reassured investors spooked by the possibility of a harder line on bank lending and regulation. The main Shanghai index finished up 0.68 per cent.
Shares close at 10-month highStocks tumble amid investors’ worries
