European shares supported by telecoms, banks; Unilever slump weighs

* Pan-European STOXX index up 0.2 percent

* Unilever (NYSE: UL - news) slumps after Kraft walks away

* Deutsche Telekom (IOB: 0MPH.IL - news) lifted by hopes of US mobile mergers

* RBS (LSE: RBS.L - news) top gainer among European banks

* Live Markets blog: cpurl://apps.cp./cms/?pageId=livemarkets (Adds details, updates prices)

By Danilo Masoni

MILAN, Feb 20 (Reuters) - European shares rose on Monday, helped by stronger telecoms and banking stocks, but a slump in Unilever following Kraft Heinz (Swiss: KHC.SW - news) 's withdrawal of its $143 billion bid for it weighed on the broader market.

The pan-European STOXX 600 index was up 0.2 percent, just below its highest level since early December 2015 hit earlier this month.

Unilever fell as much as 9 percent, wiping off $13 billion in market value in the first 20 minutes of trading and making its shares the biggest fallers on the STOXX index.

Backed by Warren Buffett, Kraft had wanted to buy its bigger rival to build a consumer goods giant but its offer was flatly rejected on Friday by Unilever.

Shares (Berlin: DI6.BE - news) in Unilever however stayed above the levels they were trading at on Friday before Heinz's plans emerged as investors bet on what the Anglo-Dutch consumer goods group could do next.

"The ball is in Unilever's court now to prove its shareholders that it has more value to offer as a standalone company," said Jauke de Jong, analyst at AFS Group in Amsterdam.

According to analysts at Societe Generale (Swiss: 519928.SW - news) , Unilever should consider a big share buyback or even better make a strategic acquisition. They said buying U.S. brand Colgate would be a game changer and would allow the group to remain independent.

Telecoms stocks rose 1.3 percent, leading sectoral gainers in Europe, led higher by a 3.2 percent surge in Deutsche Telekom on the back of a Reuters report that fuelled hopes of mobile consolidation in the United States.

According to people familiar with the matter, Japan's SoftBank (Swiss: SOFB.SW - news) is prepared to give up control of Sprint to Deutsche Telekom's US mobile arm to clinch a merger of the two U.S. wireless carriers.

In a positive banking sector, Royal Bank of Scotland surged 6.3 percent, leading gainers on the FTSE, as investors cheered to news the company had proposed abandoning the planned sale of Williams & Glyn unit.

"This is good news for RBS and for chief executive Ross McEwan, whose efforts to set up Williams & Glyn as a standalone bank failed badly and at huge cost," said ETX Capital Senior Market Analyst Neil Wilson.

Among top gainers were the Frankfurt-listed shares in South African retail group Steinhoff. The stock rose 6.5 percent after it terminated talks to sell its Africa retail assets to Shoprite.

Elsewhere activity was driven by some earnings-related news.

Boskalis fell 5.2 percent after the marine construction firm warned of a 840 million euros charge due to deteriorated market conditions in offshore energy sector.

Bovis fell 10 percent after the British builder said profit would drop again this year as it builds fewer homes and focuses on improving quality.

In spite of the disappointing updates on Monday, European earnings have been good so far, contributing along with a boost in merger and acquisition activity to the recent rally in European shares.

"We believe we are at the first major inflection in the European profit cycle in 7 years," said UBS (LSE: 0QNR.L - news) analysts in a note.

(Reporting by Danilo Masoni; Editing by Tom Heneghan)