UK's FTSE sees biggest gain since May on Greek deal hopes, bid spec

* FTSE rises 1.7 pct, lags gains for 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 closing prices, milestone)

By Sudip Kar-Gupta and Alistair Smout

LONDON, June 22 (Reuters) - Britain's benchmark FTSE 100 equity index rallied on Monday as bid speculation boosted media group Sky and utility Severn Trent , while hopes of a Greek debt deal lifted stock markets worldwide.

The blue-chip index rose 115.22 points, or 1.7 percent, to 6,825.67 points at the close, its strongest daily gain since the results of the general election in May.

However, the index lagged gains in euro zone markets, with the blue chip Euro STOXX 50 bouncing 4.2 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 nearly three points to hit a three-week low.

Sky was among the best-performing FTSE 100 stocks, rising 3.4 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 6 percent, the top FTSE riser, 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.

Cruise operator Carnival (LSE: CCL.L - news) rose 3.8 percent to a two month high after Deutsche Bank (Xetra: 514000 - news) lifted its rating on the stock to "buy" from "hold".

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 4 percent since the start of 2015, although has fallen 4.2 percent from a record high of 7,122.74 points reached in April. (Editing by Mark Heinrich/Hugh Lawson)