By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- European stocks advanced Wednesday, with a ratings upgrade supporting shares of Alcatel-Lucent, but a potential tie-up involving French telecommunications firm Orange SA was shelved, pressuring its shares.

The Stoxx Europe 600 index picked up 0.2% at 345.68, a second consecutive win. It closed Tuesday's session higher by 0.9%, the strongest percentage rise in two months, according to FactSet data.

Ocado Group PLC shares, which suffered losses in the previous session, jumped 14% and topped the pan-European index Wednesday following an upgrade of the British online grocer to hold from sell at Deutsche Bank.

Also on the winning end of the index, Alcatel-Lucent picked up 3.7% after the telecommunications-equipment maker's rating was raised to overweight from neutral at J.P. Morgan Cazenove. "With the restructuring proceeding at a faster pace than guided originally and the stock having pulled back because some investors have taken profits, not because progress has stalled, we upgrade the stock to overweight," wrote analyst Sandeep Deshpande.

AstraZeneca PLC notched a 1.1% rise, extending Tuesday's gains after Chief Executive Pascal Soriot spent GBP2 million ($3.4 million) to raise his stake in the British drug maker.

AstraZeneca aided in pushing the U.K.'s FTSE 100 up 0.2% at 6,816.37. Meanwhile, June U.K. construction figures showed expanded strength in the sector, topped by residential house-building. The pound (GBPUSD)rose against the U.S. dollar to $1.718 compared with $1.715 late Tuesday.

Wading near the bottom of the Stoxx 600 was Orange , with shares dropping 3.5% after the telecoms company ditched its pursuit of a potential merger or acquisition in France. After examining possibilities that would lead to consolidation in the French telecoms market, Orange said it "believes that it cannot pursue this avenue at the present time as the conditions that the group has set have not been met."

In recent weeks, Orange was reported to be in talks to acquire a stake in mobile operator Bouygues Telecom amid a push by the French government for telecom-sector consolidation. Bouygues SA shares fell 2%. Shares of Iliad SA , which had previously put up a bid for the Bouygues unit, finished down 3.5%.

A combination between Iliad and Bouygues "may happen and that it could still be positive for the French mobile market," said RBC Capital Markets analyst Olivia Peters in a note. "However, it seems that the parties concerned are unable to agree on a price which spans from EUR5-EUR8 billion."

The pullback in Orange and Bouygues shares put pressure on France's CAC 40 equity index , which fell 0.4% at 4,444.72.

Stock in Roche lost grip of gains and closed lower by 0.3%. The Swiss drug company said it would buy privately held U.S. biotech firm Seragon Pharmaceuticals for up to $1.725 billion. Seragon researches breast-cancer treatment. Under the agreement, Genentech -- part of Roche Group -- will pay $725 million up front in cash, plus up to an additional $1 billion based on performance of "certain predetermined milestones." The deal is expected to close in the third quarter.

In Frankfurt, the DAX 30 edged up 0.1% to 9,911.27.

Off major indexes, shares of Mothercare PLC rose 8.4% after the British children's products retailer said it recently turned down a GBP266 million ($456.5 million) acquisition offer from Destination Maternity Corp. (DEST). Philadelphia-based Destination Maternity's brands include A Pea in the Pod. Mothercare's board said the bid "significantly undervalued Mothercare and its attractive prospects," and the proposal was rejected on May 29.

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