UK's FTSE lifted by hopes of Greek deal, bid speculation

* FTSE rises 1.1 pct up but lags gains on euro zone markets

* Sky (Other OTC: BSYBF - news) , Severn Trent (Other OTC: STRNY - news) rise on bid speculation

* Thorntons (LSE: THT.L - news) surges after bid from Ferrero (Adds detail, quote)

By Sudip Kar-Gupta and Alistair Smout

LONDON, June 22 (Reuters) - Britain's benchmark equity index rallied on Monday as bid speculation boosted media group Sky (LSE: SKY.L - news) and utility Severn Trent, while hopes of a Greek debt deal lifted stock markets worldwide.

The blue-chip FTSE 100 equity index rose 70.77 points, or 1.1 percent, to 6,781.22 points at 1051 GMT, near its highest level in around two weeks.

However, the index lagged gains in euro zone markets, with the blue chip Euro STOXX 50 bouncing 2.5 percent after the European Union welcomed a new offer by Greece on a reform package.

Volatility on the FTSE, a crude measure of investor concern, was down 1.5 points, having hit a three-week low in early trade.

Sky was among the best-performing FTSE 100 stocks, rising 3.5 percent after The Sunday Telegraph newspaper reported that the Murdoch family might be planning a new attempt to take full control of Sky.

The report said that Murdoch had rebuffed bids from Vodafone and Vivendi, and UBS (NYSEArca: FBGX - news) said that Sky could be an attractive option for several buyers.

"We think the Telegraph report highlights the potential strategic value of Sky to a number of different parties and this is not reflected in the current share price," analysts at UBS said in a note, giving the stock a "buy" rating.

Severn Trent advanced 3.7 percent after the Sunday Times reported Canadian investment company Borealis Infrastructure was considering a bid, while small-cap chocolate firm Thorntons surged more than 40 percent after Ferrero International made a bid.

Given previous instances of hopes for an easing of Greece's debt crisis being thwarted, some traders remained cautious.

"I'd rather wait to see them sign on the dotted line on Greece and then buy into the market rather than buy into it right now," said Hantec Markets analyst Richard Perry.

The FTSE 100 is up more than 3 percent since the start of 2015, although it is down nearly 5 percent from a record high of 7,122.74 points reached in April. (Editing by Gareth Jones)