European equities hit multi-year high, leisure stocks lead

* FTSEurofirst 300 index rises 0.2 percent

* Intercontinental Hotel gains on M&A talk

* Travel and leisure index top gainer in Europe

By Atul Prakash

LONDON, May 27 (Reuters) - European shares advanced on Tuesday, with a major index climbing to its highest level in more than six years, supported by the travel and leisure sector that rose on mergers and acquisitions talk.

The STOXX Europe 600 Travel and Leisure index rose to its highest since 2007 and was up 1.2 percent by 1042 GMT, the best sectoral gainer in Europe, led by Intercontinental Hotel Group after media reported deal interest from an unidentified bidder in the United States.

Shares in Intercontinental Hotel Group (IHG) surged 4.5 percent, the top performer on the pan-European FTSEurofirst 300 , which was up 0.2 percent at 1,378.51 points after climbing to its highest levels since early 2008.

Sky News, citing unidentified sources, said the world's largest hotelier, IHG, had rejected a 6 billion pound ($10.1 billion) takeover offer from a U.S. bidder on the grounds it was too low. A spokeswoman for the company declined to comment on the report.

"There is a lot of cash on corporate balance sheets and there is a big incentive for them to go out and deploy that cash to generate growth and cost synergies," Henk Potts, equity strategist at Barclays Wealth, said.

Credit Suisse (NYSE: CS - news) said in a note that a potential deal could generate savings of about $50 million annually and there could be benefits from an altered tax domicile.

French peer Accor (Paris: FR0000120404 - news) , Europe's largest hotel group, gained 1.3 percent after saying on Tuesday it had agreed to buy the assets of 97 hotels for about 900 million euros, in a move the company said would boost earnings.

"If you've got confidence in hotels you've got confidence in the consumer," said Charles Stanley (LSE: CAY.L - news) analyst Jeremy Batstone-Carr. "Strength in consumer-facing sectors reflects a belief that pressure is easing on disposable incomes," he added, while noting that incomes in many economies remain squeezed.

The reopening of British markets after a holiday helped support stocks across the continent. The FTSE 100 rose 0.5 percent, while Germany's DAX was up 0.4 percent after setting a new record high for a second day in a row.

On Monday, the DAX climbed to a life-time high and Italy's FTSE MIB rose 3.6 percent as strong showings by pro-European forces in Germany and Italy helped balance Eurosceptic gains in France, Britain and Greece.

Investors remained positive on the stock market's outlook on expectations that the European Central Bank could announce some market-friendly measures during its policy meeting on June 5 to support the region's economy.

ECB chief Mario Draghi said on Monday the European Central Bank must be "particularly watchful" for any negative price spiral in the euro zone, reiterating his readiness to act to support prices.

"Draghi signalled yesterday a readiness to act on low inflation, which could be warming us up for June intervention and helped risk appetite," said Mike van Dulken, head of research at Accendo Markets.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Alistair Smout; editing by Susan Thomas)