European shares rise led by defensive stocks, telecoms slump

* Pan-European FTSEurofirst 300 index up 0.6 pct

* Telecom plungh as Orange (LSE: 0OQV.L - news) , Bouygues (LSE: 0HAN.L - news) deal fails

* Healthcare, utilities stocks lead gainers

* Lower banks weigh on Italy blue chip index (ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon (see cpurl://apps.cp./cms/?pageId=livemarkets for site in development)

By Atul Prakash and Danilo Masoni

LONDON/MILAN, April 4 (Reuters) - European shares bounced back from one month lows on Monday, led higher by gains in defensive stocks, but telecoms fell after talks between Orange and Bouygues on creating a dominant French operator collapsed.

Shares (Berlin: DI6.BE - news) in French group Bouygues slumped more than 15 percent to below 30 euros and were on course for their worst day in 17 years.

The STOXX Europe 600 Telecommunications index was down 1.2 percent at one-month lows following the failure late on Friday of the proposed 10 billion euro cash-and-share deal.

Orange was down 6.4 percent. Other French telecom firms also dropped sharply, with Iliad (LSE: 0MGY.L - news) , SFR and Altice (Other OTC: ATSVF - news) all down by 13 and 17 percent.

The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecoms groups to three from four in France and prop up profits, which have been depressed since the arrival of low-cost operator Iliad.

Berenberg downgraded Bouygues to "sell" and cut its target price for the stock to 30 euros from 40 euros.

"We believe that this was one of the last chances for consolidation within the French telecoms market. France will remain a competitive four-player market, with a high capex burden as the market moves to fibre," Berenberg analysts said.

Choppy market conditions prompted investors to buy defensive stocks, with the European healthcare index gaining 2.1 percent and the utilities index up 0.7 percent.

German utility RWE (LSE: 0FUZ.L - news) rose 3 percent, helped by an upgrade by Societe Generale (Swiss: 519928.SW - news) to "buy" from "hold".

The pan-European FTSEurofirst 300 index was up 0.6 percent by 1426 GMT after falling 1.5 percent to a one-month low on Friday. The index is down about 7 percent this year.

However, a Reuters poll predicted on Friday that European shares will rise 8 percent from present levels to the end of 2016, with the European Central Bank's supportive monetary policy and the region's improving economic outlook seen helping riskier assets.

The poll also showed that Britain's benchmark equity index will not make much, if any, progress for the rest of 2016, due to uncertainty over the country's vote on European Union membership and fears of a global slowdown.

Italy's FTSE MIB fell 0.6 percent, dragged down by weaker banking stocks including the country's largest lenders UniCredit (EUREX: DE000A163206.EX - news) and Intesa Sanpaolo (Amsterdam: IO6.AS - news) which were both downgraded by Mediobanca (Milan: MB.MI - news) in Europe-wide sector a note.

Today's European research round-up

ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon (see cpurl://apps.cp./cms/?pageId=livemarkets for site in development). In a real-time, multimedia format from 0600 London time through the 1630 closing bell, it will include the best of our market reporting, Stocks Buzz service, Eikon graphics, Reuters pictures, eye-catching research and market zeitgeist. Breaking news and dramatic market moves will continue to be alerted to all clients and we will continue to provide a short opening story and comprehensive closing reports.

If you have any thoughts, suggestions or feedback on this, please email mike.dolan@thomsonreuters.com.

Mike Dolan, Markets Editor EMEA. (Editing by Tom Heneghan and Keith Weir)