Britain's benchmark share index closed higher on Tuesday, as British Airways led a bounce in stocks hit hardest by worry about global security following last week's Madrid attacks.
British Airways clawed back 4.1 percent of Monday's seven-percent fall, amid talk of a tie-up with Spanish Iberia airline, which soared 7.5 percent, despite strong denials from both companies.
However other travel-related stocks were weak, as investors fretted over signs that al Qaeda militants were linked to the Madrid bombs. Intercontinental Hotels fell 1.1 percent.
The FTSE-100 index closed 16.0 points higher at 4,428.9 points, above a session low of 4,394.6. Volume was moderate at just over 2.4 billion shares as investors waited for a key US decision on interest rates.
Stephen Ford, Director at Brewin Dolphin Investment Management, said the London market's 100-point or so fall in the wake of the Madrid bombs showed a pragmatic investor response, although recent weakness in US markets was a worry.
"Given that we've had 11 strong months people were waiting for some sort of setback, but having said that the technical analysts are saying that a top is forming in the US," he said.
"I think it's fair to say that the bulls should be reassured by the lack of any meaningful setback. What's worrying is the move in the US, if the US starts to go down savagely we'll go down with it," he added.
Banks provided most of the upward impetus in the London market, with sector rationalisation back on the agenda after France's BNP Paribas made a $1.2 billion US acquisition.
News that US investment bank Lehman more than doubled quarterly profit also gave support to the sector, with HBOS up 1.3 percent and Lloyds TSB up 0.7 percent.
Defence company BAE Systems added 3.2 percent as it continued its recent advance on a report it would not make a counter-bid for tank producer Alvis, which is subject to a bid from US firm General Dynamics.
Anglo American rose after investment bank Merrill Lynch said it sold 6.87 million shares in the mining giant at 1,270 pence a share. Merrill said the offering was about twice covered in its indicated price range of 1,265-1,275p, which traders said showed strong underlying support for the shares.
Anglo-US fund manager Amvescap, often seen as a proxy play on the wider market, was among the top FTSE losers, down 1.3 percent. Investors also thinned out some of the recent defensive gainers with tobaccos firm Imperial Gallaher both down around one percent.
Among mid-caps, shares in biotechnology firm Celltech were up 7.5 percent after it said it expected to sign a lucrative marketing deal for its biggest new drug hope during the second quarter of 2004.
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