Leading UK shares broke a steep two-day losing streak on Thursday, closing higher on well-received company earnings and boosted by gains in the drugs sector.
Airports operator BAA stood out on the downside, however, dropping 6.7 percent on widespread talk Spanish construction firm Ferrovial was no longer interested in making a bid. Last week, sources familiar with the situation said Ferrovial could make an offer this week.
BAA and Ferrovial declined to comment.
AstraZeneca rose 4.4 percent to 2,832 pence on a fresh round of speculation that Swiss-based rival Novartis was pondering a bid. Several traders reported talk that an offer could be pitched at 4,000p a share. Officials at both companies declined to comment.
Shares in GlaxoSmithKline, often mentioned as a potential suitor for AstraZeneca, closed 1.5 percent up, boosted by an upgrade in its shares by Deutsche Bank to "buy" from "hold". The sector was also sought for its defensive qualities as concerns over global interest rates linger.
British Airways closed 3.8 percent higher after it said it expected to hit a key profitability target in two years, helped by a programme to cut costs by 450 million pounds.
The FTSE 100 index finished the day 43 points higher at 5,855.9, pulling out of a dive which knocked some 85 points off the index over the previous two sessions.
Traders said investors were encouraged by forecast-beating results from insurer Royal & Sun Alliance, which underlined the strength of the current UK company earnings season. A stronger Wall Street opening also helped the tone.
"The story from the corporate sector is still fairly positive in terms of earnings and at the moment interest rates going up is more of a fear than a reality," said Chris Iggo, strategist at Axa Investment Managers.
Britain's decision to leave UK interest rates on hold at 4.5 percent for the seventh month running came as little surprise although it was against the backdrop of news the Bank of Japan ended five years of super-loose monetary policy, a European Central Bank interest rate hike last week a no signs that the US will end its tightening campaign.
"There's a little bit more caution coming into the investment outlook mostly because of fears of higher interest rates in the US and Europe and now Japan," said Iggo.
"Cheap money has been a big driver of financial markets over the last two or three years. The Fed's done its best to take away one source of cheap money, it now looks likes the ECB and the Bank of Japan are doing the same," he added.
Royal & Sun closed 1.6 percent higher after it more than doubled yearly profit and said it was well positioned to deliver growth. The results were boosted by asset sales, reserve releases and investment gains. Last week, sector peer Aviva also reported annual profit above market forecasts.
UK drug shares were taking part in a wider advance through Europe on growing speculation of fresh sector consolidation and after Deutsche Bank said European drug stocks are poised to perform.
"We believe that the EU pharma sector will ... deliver a 17 percent 12-month return as investors seek defensive growth following relative underperformance year-to-date," Deutsche analysts wrote in a research note.
Building and plumbing supplier Wolseley rose 3.8 percent after it detailed the latest of the current financial year's acquisitions, which are expected to swell group turnover.
Mining shares, which had been sold this week as metals prices fell sharply, rallied to feature prominently among FTSE 100 gainers.
Copper miner Kazakhmys rose 4.4 percent after copper prices bounced, underpinning a more stable tone in the metals sphere. Other miners saw Rio Tinto rise 1.4 percent.
On the downside, supermarket giant Tesco fell 0.9 percent but rival Sainsbury rose 0.6 percent after the UK competition watchdog signalled its intention to refer the country's supermarkets to the Competition Commission for a full probe. Market leader Tesco is seen as having most to lose in any shake up of the industry, dealers said.
Midcaps were higher, with transport firm National Express Group up 6.6 percent after it reported 2005 profits at the top end of forecasts and said 2006 had started well.
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