Jan. 27 (Bloomberg) -- European stocks gained, led by Royal Philips Electronics NV, Siemens AG and Bayer AG after a research institute said business confidence in Germany during January rose to a three-year high.

``We don't think the strong economy is reflected in share prices at this point in time,'' said Dirk Thiels, who helps oversee about $104 billion at KBC Asset Management in Brussels.

Phone companies climbed after Deutsche Telekom AG, Europe's biggest, said it added 7.6 million subscribers at its mobile- phone unit last year, boosted by growth in its U.S. business. Vodafone Group Plc also advanced.

The Dow Jones Stoxx 50 Index increased 1 percent to 2754.43 at 11:44 a.m. in London. The Stoxx 600 added 0.9 percent, with telecommunications shares accounting for 20 percent of the climb. The Euro Stoxx 50, a benchmark for the 12 countries using the euro, jumped 1.3 percent to its highest in about 18 months.

German business confidence unexpectedly rose in January to the highest reading since January 2001, suggesting executives in Europe's largest economy are optimistic they will overcome the effects of the euro's appreciation. European stocks in 2004 have extended last year's gain, when benchmarks climbed for the first year in four, on optimism economic growth will lift profits.

``In the short term, the outlook is quite favorable for stocks,'' KBC's Thiels said.

Benchmark indexes gained in all 17 Western European markets except for Luxembourg and Ireland. Germany's DAX Index rose 1 percent, France's CAC 40 Index gained 1.3 percent and the U.K.'s FTSE 100 Index added 0.7 percent. March futures on the Euro Stoxx 50 climbed 0.9 percent to 2919.

Philips, Siemens, Bayer

Philips, Europe's biggest maker of consumer electronics, rose 2.5 percent to 25.21 euros. Siemens, Germany's largest engineering company, added 1.9 percent to 66.90 euros. Bayer, Germany's No. 2 drug and chemical maker, added 2.5 percent to 24.71 euros.

In the U.S., stocks climbed yesterday, pushing the Dow Jones Industrial Average and the Nasdaq Composite Index to the highest since June 2001, as reports from companies including Lexmark International Inc. spurred optimism that corporate profits may surpass investors' expectations.

Deutsche Telekom, Europe's largest phone company, climbed 2 percent to 16.75 euros after saying it added 7.6 million subscribers at its mobile-phone unit last year, boosted by faster- than-expected growth at its U.S. unit.

T-Mobile International AG had a total of 66.2 million mobile- phone subscribers at the end of last year, an increase of 13 percent. T-Mobile USA added 1.02 million customers in the fourth quarter, more than the 898,000 nine analysts had forecast in a Bloomberg News survey.

Subscriber Figures

Vodafone, the world's biggest mobile-phone company, increased 2.7 percent to 145.5 pence. It reports fiscal third- quarter subscriber numbers on Wednesday. The company owns 45 percent of U.S. market leader Verizon Wireless Inc.

Virgin Mobile, a unit of Richard Branson's closely held Virgin Group Ltd., today said it added a record number of new customers in the fourth quarter, helped by rewards for users who connected friends and cut-price text messages.

MMO2 Plc, the U.K.'s third-largest cellular operator, jumped 4.5 percent to 87 pence.

Some phone stocks also had their share-price forecasts raised by UBS AG.

Deutsche Telekom had its 12-month share price forecast raised 17 percent to 16.20 euros, a level already surpassed. France Telecom SA, the former French monopoly, added 1.3 percent to 24.91 euros. UBS lifted its price forecast for the shares by 14 percent to 24 euros a share, a level exceeded Friday.

Infineon Upgrade

Infineon Technologies AG, Europe's second-biggest semiconductor maker, climbed 3.1 percent to 11.88 euros after Citigroup Inc. raised its recommendation on the stock to ``hold'' from ``sell,'' saying prices for the most widely used computer- memory chips are stabilizing, with prices expected to rise in the first half of February as inventories are at a record low.

ASML Holding NV, the region's largest maker of machinery for the semiconductor industry, gained 1.7 percent to 16.36 euros. ASM International NV, a smaller chip-equipment maker, rose 1.9 percent to 20.39 euros.

Bayerische Motoren Werke AG, the world's second-largest luxury carmaker, rose 1.5 percent to 35.87 euros after Chief Executive Officer Helmut Panke reiterated in a letter to shareholders that profit for last year should be at the same level as the 2 billion euros ($2.5 billion) the company earned in 2002.

BMW also said it expects record unit sales for all its brands this year after sales fell 2.1 percent to 41.53 billion euros in 2003 as the company was hurt by the declining value of the dollar.

Schering Cut

Schering AG, the world's largest maker of birth-control pills, fell 3.4 percent to 44.20 euros after analysts at Deutsche Bank AG cut their recommendation on the stock to ``sell'' from ``hold.''

AstraZeneca Plc, Europe's second-biggest drugmaker, rose 1.2 percent to 2,666 pence. The company will use thematic analysis technology of U.K. drug researcher BioFocus Plc to speed up discovery of drugs to fight diseases such as cancer, depression and diabetes. BioFocus's shares surged 9.4 percent to 175 pence.

Rank Group Plc, the U.K. owner of the Hard Rock Cafe chain, gained 3 percent to 302 pence after Mark Finnie, an analyst at Deutsche Bank, advised his clients to ``buy'' the stock.

Ifo's index of western German business sentiment increased to 97.4 from a revised 96.9 in December, the ninth consecutive gain. Economists had expected confidence to be unchanged, the median of 40 forecasts in a Bloomberg News survey showed.

Last Updated: January 27, 2004 06:50 EST