LONDON -- Telecom stocks drove European markets higher as investors celebrated the fact the Italian auction for third-generation mobile phone licenses ended with bids worth a total of only $10 billion, compared with the expected $25 billion.

British Telecom

(BTY)

, whose consortium

Blu

caused the premature end of the auction by pulling out after only two days, was the undoubted star of the session by closing higher 81p, or 11.5%, at 788 ($11.43). Investors are clearly relieved that BT has not piled on more debt in an effort to secure a foothold in Italy -- an arguably mature market that has already been sewn up by

Telecom Italia Mobile

and

Vodafone

(VOD) - Get Report

-controlled

Omnitel

.

But can fundamental factors alone account for the astounding performance? "After failing to maintain the break of the 700p support level on BT, we now expect a bounce out to 900p, which is key to get more excited overall," argues

Flemings

technical analyst Nicola Merrell.

Vodafone was laughing all the way to the bank. The world's largest mobile-phone operator picked up its Italian license at a snip and investors rejoiced by sending the shares 4p higher, or 1.4%, to 285.

Enthusiasm spread to telecom companies that hadn't even participated in the auction.

Colt Telecom

(COLTY)

closed up 295p, or 14.9%, at

22.80 and

Energis

(ENGSY)

rose 64p, or 13.1%, to 554.

Overall, the

FTSE 100

closed the day an impressive 123 higher, or 1.9%, to 6438 and strength on the other side of the Atlantic, where the both the Dow Jones Industrial Average and the Nasdaq are higher, bodes well for Wednesday.

Tech stocks rose, with the

Techmark 100

closing up 115 points, or 3%, at 3,541.

Bookham Technology

(BKHM)

rocketed a massive 11.8% to

27.95, but the only apparent news was that

Wit SoundView

had reiterated its strong-buy recommendation.

In the media sector,

Reuters Group

(RTRSY)

rose 81p, or 6.4%, to

TheStreet Recommends

13.53 after announcing that it has formed an online foreign exchange venture with

Chase

,

Citigroup

and

Deutsche Bank

.

Europe's other stock markets finished Tuesday higher, as the

CAC 40

in Paris ended up 141.4, or 2.3%, at 6323.7 and the

Xetra Dax

in Frankfurt was up 176.6, or 2.7%, at 6797.5 late in German trading. The Neuer Markt's tech-heavy

Nemax 50

index was up 158.2, or 3.5%, at 4758.7.

Telecom stocks continued to surge a day after the end of the Italian UMTS auction, with

France Telecom

(FTE)

ending up 8.10 euros, or 7.2%, to 121.10 ($101.15),

Telefonica

(TEF) - Get Report

closing 1.19 euros higher, or 5.5%, at 22.69, and

Deutsche Telekom

(DT) - Get Report

rising 3.55 euros, or 9%, to 43.05.

The positive sentiment spilled over into technology shares, as

SAP

(SAP) - Get Report

rose 19.35 euros, or 8.9%, to 51.21,

Epcos

(EPC) - Get Report

rose 2.00 euros, or 2%, to 90.50, and

Infineon

(IFX)

climbed 2.33 euros, or 4.8%, to 51.21.

Old Economy shares were left behind, as

DaimlerChrysler

(DCX)

fell 0.67 euros, or 1.2%, to 53.30 and

TotalFinaElf

(TOT) - Get Report

dropped 0.20 euros, or 0.1%, to 173.80.