Britain's leading share index closed higher on Wednesday, having set a fresh four-year high, with drugs firm AstraZeneca rising on news it was embarking on key tests of a new lung cancer drug, and despite a weaker heavyweight oil and gas sector.
Several blue chip firms - including mobile phone giant Vodafone - traded without the right to the latest dividend, weighing further on the index but analysts said persistent take-over activity could underpin the market and inspire a year-end rally.
The FTSE 100 ended 14.5 points, or 0.3 percent, higher at 5,531.7 points - having earlier hit its highest level since August 2001 at 5,532.7 points. That level beat Friday's four-year high of 5,531.6.
"If it can hang on to the psychologically important 5,500 level we could be in for a year-end rally," said Hargreaves Lansdown head of UK equities Richard Hunter. "If we look back to last year we had the so-called Santa Claus rally and all things being equal there is no reason why we could not get that again this December."
AstraZeneca gained 2.4 percent after it said it had started recruiting patients for a pivotal study of its experimental lung cancer drug.
Bid talk continued to boost the share prices of potential UK-listed targets including Kingfisher, record company EMI and SkyePharma.
Fading speculation over British-listed firms acquiring foreign-based companies also boosted the index.
South African insurer Old Mutual advanced 2.6 percent after ruling out raising its $5.6 billion bid for Swedish savings group Skandia, quashing speculation it could sweeten the deal to win over shareholders.
Dixons-owner DSG International, Britain's biggest electrical retailer, said trading at its Dixons, Currys and other stores remained weak but its shares rallied 1.5 percent on relief that trade was not worse than anticipated.
However, high-street stores will have to do without the prospect of a UK interest rate cut in the run-in to the crucial Christmas trading period, according to analysts interpreting a unanimous decision by the Bank of England to keep borrowing costs on hold this month at 4.5 percent.
Some analysts say the Bank's policymakers, who did not discuss the possibility of changing rates, could cut rates in February.
Takeover talk buoyed UK equities elsewhere with mid-cap SkyePharma leaping as much as 10 percent after a press report cited rumours Switzerland's Novartis AG might bid for the drug delivery firm.
Shares in the world's third-largest record company EMI also rose as much as 10 percent, lifted by fresh speculation of a take-over at around the 300-pence-a-share level, dealers said.
"Takeover deals are underpinning the market," Hargreaves Lansdown's Hunter said. "There seems to be a great deal of private equity money waiting on the sidelines for the right deal to come along."
On the downside, copper miner Antofagasta shed 1.4 percent as investors took profits on its run to record highs following peaks in copper prices. Copper traded off those highs on Wednesday.
The heavyweight oil sector also fell, taking 7 points off the index as oil prices eased following US inventory data showing a bigger-than-expected rise in fuel stocks.
The effect of stocks trading without the latest dividend was difficult to shrug off with bank HSBC and retailer Next falling.
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