* Orange rises on Dt Telekom bid rumours
* Peripheral European markets outperform
* Volumes low on public holiday in much of Europe
* DAX ends up back over 10,000-point level
* FTSEurofirst 300 closes up 0.4 pct at 1,393.71 points
By Sudip Kar-Gupta
LONDON, June 9 (Reuters) - Spain, Italy and Portugal outperformed other European stock markets on Monday, as investors stepped up bets that they would benefit most from the European Central Bank's latest economic stimulus measures.
Bid speculation also lifted telecoms company Orange , which ended up 1.8 percent - the best performer on Paris' main stock market - as traders cited talk of a possible offer from Deutsche Telekom.
An Orange spokesman said the company had no comment to make on the situation. Deutsche Telekom's chief executive Tim Hoettges told shareholders last month the group was not in any talks about a potential merger.
The gains in Madrid, Milan and Lisbon propped up key pan-European equity indexes, although volumes were thin due to public holidays in several European countries.
Lisbon's PSI-20 equity index rose 0.6 percent, helped by Portugal's 10-year bond yield falling to its lowest level since January 2006 on expectations the country's recovery from the euro zone debt crisis would gather pace.
Milan's FTSE MIB ended up 0.8 percent while Spain's IBEX rose 0.9 percent, building on a rally last week that was driven by the European Central Bank's new measures.
The ECB on Thursday cut interest rates, launched a series of measures to pump money into the euro zone economy and pledged to do more if needed to fight off the risk of Japan-style deflation, sparking a rally in European equities.
The Italian and Spanish markets are more heavily weighted towards "cyclical" stocks such as banks, which often outperform in a strengthening economic cycle, than other European markets.
"People feel that the banks in those countries are most exposed to improved funding," said Andrea Williams, European equities fund manager at Royal London Asset Management.
The euro zone's blue-chip Euro STOXX 50 index rose 0.3 percent to 3,305.26 points, close to a six-year high and setting a new peak for 2014.
The pan-European FTSEurofirst 300 index rose 0.4 percent to 1,393.71 points, also setting a new high for 2014, while Germany's DAX closed up 0.2 percent at 10,008.63 points - near a record high of 10,013.69 points set on June 5.
HED Capital head Richard Edwards recommended investors to take profits on the stock market rally so far, while JP Morgan's European equity strategist Mislav Matejka backed adding to equity positions when the markets dipped.
"In our view, equities remain attractively valued versus other asset classes, and the in-flows are steadily coming through," said Matejka.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Additional reporting by Blaise Robinson and Leila Abboud; Editing by Toby Chopra/Louise Heavens/Susan Fenton)