Leading UK shares closed a volatile day firmly in positive territory on Thursday, with oil shares leading the way ahead as Hurricane Rita weakened slightly, prompting talk it may do less damage to US oil facilities than at first thought.
Oil giant Shell climbed 1 percent and peer BP added 0.8 percent, both boosted by a rise in the oil price to near $68 a barrel and speculation Rita might be downgraded from a Category 5 storm.
"Apparently the hurricane has slowed down and it's a little less intense than it was," said a trader. "Ironically it's good for BP and Shell either way. If it's a bad storm and the oil price goes up that's good for them. If it's less bad than thought their production doesn't get hit so hard."
The FTSE 100 index closed 16 points higher at 5,385.7, bouncing off a session low of 5,354.3 which was about 90 points off Tuesday's 4-year intra day high.
"The odd thing was why did it fall so much earlier in the week? We hit 4-year highs and I think people got vertigo. A lot of traders thought: 'We've set a new landmark here, better lock in some profit'," said Anais Faraj, Global Equity analyst at Nomura.
"I think now it's back to the trend. The trend line is very clear, which basically that we're going to close the year above 5,500 and the market is not that expensive. We've had unremitting good news on earnings, on interest rates and on growth," he added.
The bid talk which has helped fuel the FTSE 100 to 4-year highs carried on, although few traders put much credence in market chat that BP would make a move for Spanish oil firm Repsol.
"We heard that rumour from 6 different sources so it was clearly being talking about. It's not wholly unlikely that some consolidation will happen in the sector but we don't think it will be BP and Repsol," said the trader.
Also offering support, shares in Old Mutual gained 2.8 percent as traders positioned themselves before the deadline on Friday for Skandia's response to the South African insurer's bid.
Sugar and sweeteners group Tate & Lyle was another solid blue chip gainer, up 1.5 percent after the company said Wal-Mart would remove its own-brand sucralose sweetener called Altern from stores.
"They've had to strip Altern off the shelves now and the market's encouraged by the fact that Tate is defending its patents and being an activist patent holder," said a trader.
Drugs were also strong with AstraZeneca up 1.4 percent and GlaxoSmithKline 0.8 percent up. Traders cited the dollar earners as benefiting from the greenback holding steady on currency markets despite fears of the hurricane season's effect on the US economy.
Insurers such as Prudential and Friends Provident dipped on concern over Hurricane Rita's impact on the industry so soon after Katrina.
Other losers included aerospace firm Smiths Group, down 1.8 percent after cash flows disappointed and it said it expected a further 40 million pounds of charges for the integration of medical firm Medex. The firm posted a 17 percent rise in year operating profits, in-line with expectations.
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