European stocks are on a roll. Through late March, Vanguard Index European, a fund that mimics the overall European market, was up more than 21 percent for 1998.

The London FT 100-share index climbed 16 percent, the Paris CAC 40 rose 24 percent, and the main indexes in Spain and Italy soared 38 percent and 35 percent, respectively.And European bourses are poised to continue outperforming the U.S. market.

In a recent report, Barton Biggs, the chief global asset allocator at Morgan Stanley Dean Witter, said European companies are three to five years behind their U.S. counterparts in restructuring. American companies have already wrung out much of their waste and inefficiency, but European companies should boost their stocks as they do likewise.

The European Monetary Union, in which 11 currencies will be merged starting next January, should enhance Europe's growth rate by 0.5 percent a year, Biggs says.

Topping it off, the U.S. dollar's three-year ascent, which had hurt investors holding foreign securities, seems to be ending.

Stocks are also cheaper in Europe than in the United States. European stocks sell for about 3.4 times book value (assets minus liabilities), while U.S. stocks trade at 4.5 times book value. And European stocks sell at 11 times cash earnings (profits plus depreciation), vs. 15 times for U.S. issues.

For most investors, the best way to take advantage of the opportunity in Europe is to add a regional fund to a portfolio that already includes a diversified overseas fund. The following are the top-performing diversified European funds over the past five years (data is to March 2):

- Dean Witter European Growth B (five-year annualized return, 24.8 percent; 1 percent annual 12b-1 fee and maximum back-end sales charge of 5 percent; $1,000 minimum initial investment; 1-800-869-3863). Manager Jeremy Lodwick, of Morgan Grenfell Investment Services, tries to buy stocks whose price-earnings ratios are below their estimated long-term growth rates.

- Fidelity Europe (22.4 percent; 3 percent maximum sales charge; $2,500; 1-800-544-8888). Sally Walden, manager since 1992, likes companies with predictable profit growth, which can be achieved through strong sales, cost-cutting or restructuring.

- Pioneer Europe A (22.1 percent; 5.75 percent charge; $1,000; 1-800-225-6292). Manager Patrick Smith looks for growing companies at attractive prices or for companies that are changing for the bet-ter.

- Putnam Europe Growth A (22 percent; 5.75 percent charge; $500; 1-800-225-1581). A three-manager team employs top-down analysis to weight assets among countries.