* Pan-European FTSEurofirst 300 index up 0.5 pct
* Telecom plunge as Orange-Bouygues deal fails
* Healthcare, utilities stocks lead gainers
* Lower banks weigh on Italy blue chip index (ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon (see cpurl://apps.cp./cms/?pageId=livemarkets for site in development) Adds closing prices)
By Atul Prakash and Danilo Masoni
LONDON/MILAN, April 4 (Reuters) - European shares bounced back from one-month lows on Monday, led higher by gains in defensive stocks, but telecoms fell after talks between Orange and Bouygues on creating a dominant French operator collapsed.
Shares in French group Bouygues slumped 13.5 percent to around 30 euros, making their worst day in 17 years.
The STOXX Europe 600 Telecommunications index fell 1.1 percent to its lowest closing level since late February following the failure late on Friday of the proposed 10 billion euro cash-and-share deal.
Orange was down 6.2 percent. Other French telecom firms also dropped sharply, with Iliad, SFR and Altice all down by 12 and 18 percent.
The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecoms groups to three from four in France and prop up profits, which have been depressed since the arrival of low-cost operator Iliad.
Berenberg downgraded Bouygues to “sell” and cut its target price for the stock to 30 euros from 40 euros.
“We believe that this was one of the last chances for consolidation within the French telecoms market. France will remain a competitive four-player market, with a high capex burden as the market moves to fibre,” Berenberg analysts said.
Choppy market conditions prompted investors to buy defensive stocks, with the European healthcare index gaining 1.8 percent and the utilities index up 0.6 percent.
German utility RWE rose 3.1 percent, helped by an upgrade by Societe Generale to “buy” from “hold”.
The pan-European FTSEurofirst 300 index closed up 0.5 after falling 1.5 percent to a one-month low on Friday. The index is down about 7 percent this year.
However, a Reuters poll predicted on Friday that European shares will rise 8 percent from present levels to the end of 2016, with the European Central Bank’s supportive monetary policy and the region’s improving economic outlook seen helping riskier assets.
The poll also showed that Britain’s benchmark equity index will not make much, if any, progress for the rest of 2016, due to uncertainty over the country’s June 23 vote on European Union membership and fears of a global slowdown.
Italy’s FTSE MIB fell 0.8 percent, dragged down by weaker banking stocks including the largest Italian lenders UniCredit and Intesa Sanpaolo, which were both downgraded by Mediobanca in a Europe-wide sector note.
Today’s European research round-up
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Mike Dolan, Markets Editor EMEA. (Editing by Mark Heinrich)