Shell helped drive the UK share market to its biggest rise for six weeks on Tuesday as investors piled into the oil major's shares as its planned restructuring was approved by shareholders and all oil stocks were helped by high crude prices and talk of consolidation. Other resources stocks were strong, with mining giant BHP Billiton up 2.1 percent after Morgan Stanley raised its target price on the stock, while mobile phone operator O2 was once again lifted by vague take-over talk.
The FTSE 100 share index closed up 46.9 points, or 0.9 percent, at 5,090.4, to claw back much of its steep losses in the last two days, helped by a strong start on Wall Street.
It was the FTSE's biggest daily rise since May 18, despite worries that a move by crude oil prices back above $60 per barrel may be good for energy firms but will crimp economic and earnings growth and hurt the broader market.
Shell shares rose 3.2 percent after its shareholders agreed to scrap its dual listing structure, creating a streamlined company that will lift the company's weighting in the FTSE 100 to near 10 percent from 4 percent now.
The deal takes effect on July 20, and dealers said fund managers have stepped up their buying to avoid being underweight in its shares; Goldman Sachs said it expected $7 billion of extra buying interest, and other analysts have estimated it could be more. "It looks like a few tracker funds are positioning themselves so they aren't going to be underweight when the time comes (for it's weighting in the FTSE to increase)," said Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown.
Morgan Stanley also released a bullish assessment of the oil sector, raising its oil price forecasts and predicting there could be another "wave of large-scale M&A" across the industry.
BG Group, often regarded as a possible target for a big name, topped the FTSE leaderboard with a 4 percent gain, while BP firmed 1.9 percent as oil stocks added 19 points to the FTSE.
Mid-cap oil exploration firms benefited from strong crude prices and some positive news, with Soco International up 6 percent after a positive drilling report in Yemen and volatile smallcap White Nile adding 4 percent after it raised 7 million pounds to fund more exploration.
But shares in Centrica lost 1.3 percent on the prospect that passing on higher energy and input costs to customers may hurt it.
Shares in O2 gained 2.2 percent as talk returned that it could be a take-over target after KPN, the Netherlands' biggest telecoms group, agreed to buy mobile phone operator Telfort for up to 1.12 billion euros, raising hopes for a fresh wave of merger and acquisition activity. KPN and Deutsche Telekom have been rumoured to be eyeing the British firm.
Logistics company Exel - also long seen as a take-over target - and recruitment firm Hays both rose over 2 percent after soothing worries about tough trading by saying trading was in line with expectations.
In contrast, midcap IT hardware distributor Computacenter tumbled 22 percent after it issued a profit warning just two months after a similar setback, while housebuilder Wilson Bowden shed 1.7 percent after it said the housing market was subdued.
But Carpetright led mid-cap gainers with an 11 percent jump after better-than-expected profits from the carpets retailer scotched fears that it may issue a warning, dealers said.
Online poker company PartyGaming was heavily traded on its second day, with 130 million shares changing hands, with its shares holding steady at 129 pence to consolidate its first-day 11 percent surge.
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