Stocks surged in major European exchanges on Wednesday, propelled by merger hopes, start-of-year demand, confidence in the new euro currency and a strong opening in New York that took the Dow Jones index to record highs.

Frankfurt

Germany's Xetra Dax index closed over 3% higher on Wednesday amid tie-up speculation in the car and telecommunications sectors.

German investors, over-looking the previous day's concerns about the euro and software group SAP, took further comfort from Wall Street as it gained over 1% in early trade to touch a record high.

The electronically traded Xetra Dax ended up 3.41% at 5,442.90, its highest level since August 21.

The floor Dax, ended 3.61% higher at 5,443.62 points.

Telecommunications grabbed investors' attention with Mannesmann in the spotlight after Britain's Vodafone entered talks to buy US AirTouch.

Mannesmann closed 1.89% higher at 118.50 euros but off a high of 124.79 euros, while Deutsche Telekom ended 5.9% up.

"People seem to see telecoms as the new holy grail," said a trader.

Car stocks were also livened up by merger speculation despite denials from the companies involved.

Late on Tuesday a BMW board member said his firm knew nothing about alleged tie-up talks with Ford Motor Co and there was no plan for any link-up. The stock rose 5.9% to end at 740.00 euros.

Shares in DaimlerChrysler also rose 6.6% despite comments by co-chairman Robert Eaton overnight that although the company was in discussions on a deal involving Nissan Diesel 7210.T truck operations, talks had not moved beyond Nissan Diesel.

Newspaper reports had said Japan's Nissan Motor Co Ltd was soon expected to announce its merger partner from a choice of rivals DaimlerChrysler, Ford and Renault.

Meanwhile, SAP recovered from its previous day's 15% plunge that was set off by disappointing 1998 results. The stock was up 3.96% at 341.00 euros. Paris

The Paris bourse joined in the New Year rally, with the Cac 40 index ending about 100 points shy of its all-time peak of last July.

The rise was partly due to a revial in demand from institutional investors who had held off for the euro conversion. More merger speculation also helped.

The Cac 40 index closed up 2.24%, 94.04 points higher at 4,294.82.

All-time best was 4,404.94 on July 20 last year.

Financial stocks were fired again by consolidation hopes.

Enthusiasm for telecoms stocks spread from London after Vodafone triggers a potential bidding war for US wireless giant AirTouch.