Britain's blue chip share index scored its biggest point gain in four months and touched a 2-1/2 year high on Tuesday, boosted by higher oils and miners and a fresh bout of bid talk that fired up logistics group Exel. Exel closed 9 percent higher at 873 pence as talk circulated that US rival UPS was lining up a bid, adding to gains made last week on speculation a posse of potential bidders, including Deutsche Post, was on Exel's trail.
Fund manager Amvescap closed 3.5 percent higher after reporting steady 2004 profits but saying it was confident it could reverse a client exodus. Traders said Amvescap was still attracting speculative buying based on talk that French bank Societe Generale could be interested in a bid.
The FTSE 100 index closed 53.9 points or 1.1 percent higher at 4,906.2, its highest reading since June 2002. The Midcap 250 index closed up 59.2 points or 0.8 percent at an all-time high of 7,225.4.
Graham Secker, UK Equities Strategist at Morgan Stanley, said he expected speculation on mergers and acquisitions to support the market for a while, although on the eve of a Federal Reserve decision on interest rates investors could be keeping an eye out for a more hawkish stance on rates from US authorities.
"We've been moving towards taking some profits in equities over the next month or so. If the market moves up another few percent over the course of the next few weeks, then we're going to be quite tempted to take a little bit of money off the table on the back of fears about US interest rates going up," he said.
"At the margin, I think the risks are that the Fed does a little bit more on rates than a little bit less than people expect," Secker added.
Buyers were out in force for the mining sector after dealers reported a bullish note from Smith Barney, which they said predicted good earnings growth for the industry, as well as ongoing optimism for the Chinese economy - a key source of demand for resource stocks.
BHP Billiton, Anglo American, Xstrata and Rio Tinto all rose by 3 to 4 percent.
Oil majors also played their part in boosting the FTSE 100, with BP and Shell up by about 3 percent after a rise in crude oil prices overnight.
Cable & Wireless was another strong gainer, up 2.6 percent on talk that the telecoms company's well-regarded chairman would be staying with the firm. An industry source said Richard Lapthorne, whose fixed-term contract ends next year, had indicated that he wanted to extend his tenure.
"He did the first things very well - sorting out the tax problems, the disposal of the US business - he's done a sterling job," said one analyst who declined to be named.
Medical devices maker Smith & Nephew advanced 2.3 percent after its US peer Zimmer reported higher-than-expected quarterly earnings and raised its 2005 profit outlook. S&N reveals full-year results on Thursday.
Among the day's minority of blue chip fallers, chemicals group ICI dipped 1.4 percent in reaction to disappointing 2004 results and a weak outlook from its European peer Ciba.
Midcaps saw mobile phone group Virgin Mobile down 7.2 percent after it reported disappointing revenue growth and higher customer turnover.
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