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* FTSEurofirst 300 ends up 2.4 pct, volatility sinks
* Greek shares up 9 pct, Greek banks up 20.8 pct
* Telecoms outperform after Bouygues approach
By Atul Prakash and Lionel Laurent
LONDON, June 22 (Reuters) - European shares surged to their highest level in more than a week on Monday, anticipating some progress on Greece's debt crisis after months of wrangling with international creditors.
The telecoms sector outperformed the broader market after a takeover bid for France's Bouygues Telecom reignited hopes for more corporate deals.
Greek stocks climbed 9 percent, with local banking shares jumping nearly 21 percent. Investors have been nervous that deposit outflows may prompt capital controls.
"It's a relief rally, but it has got a long way to unfold. There is a 75 percent chance that it will be sorted out and Greece will remain in the euro zone," Nick Lyster, European CEO of Principal Global Investors Europe, said.
Euro zone finance ministers welcomed new Greek proposals for a cash-for-reform deal on Monday but said they required detailed study and it would take several days to determine whether they can lead to an agreement to avert a default.
Jeroen Dijsselbloem, chairman of the 19-nation Eurogroup, told a news conference that they would work hard in the next few days to get a deal this week.
"We remain of the view that the most likely outcome ... is a deal," Credit Suisse analysts said in a note. "An unfortunate but predictable feature of European crisis decision-making is that such deals are only ever made at the last minute, 'at the edge of the abyss'."
The pan-European FTSEurofirst 300 index closed 2.4 percent higher, while the euro zone's Euro STOXX 50 gained 4.1 percent, its biggest one-day percentage rise since August 2012. The VSTOXX measure of European stock-market volatility slumped to its lowest level in 10 days.
Share indexes in Britain, France, Germany , Italy and Spain rose 1.7 to 3.9 percent. IG strategist Chris Weston said some 71 percent of all open trading positions held by IG clients were bets the DAX index will rise.
The top gainers of the day among European shares were telecom stocks. Bouygues rose 13.2 percent after Monday's confirmation of a takeover bid from Altice via its Numericable-SFR subsidiary, which itself rose 14 percent. Altice shares were up 12.6 percent.
"Conditions are right for a further pick-up in M&A activity as we are witnessing some positive factors such as high corporate confidence and still cheaper lending. Rising average deal premiums are indicative of growing confidence in M&A deals," said James Butterfill, global equity strategist at Coutts.
According to Coutts data, the ratio of cash to total assets with STOXX Europe 600 companies is now about 4.5 percent, against a quarterly average of 2 percent from 1998 until the financial crisis in 2008, indicating that the M&A appetite of European companies remains strong.
British broadcaster Sky gained 3.5 percent after the Sunday Telegraph reported that the Murdoch family was said to have rebuffed two offers for its stake.
Deal hopes also propelled UK chocolatier Thorntons' shares up a whopping 42 percent after Ferrero International SA offered to buy the company at a premium of about 42.9 percent to its closing share price on Friday. (Editing by Larry King)