Britain's top shares recovered early losses to close higher on Wednesday, pulled up by banks and oil shares as dealers reported merger talk surrounding Barclays and the crude price steadied.
Shares in Britain's third-biggest bank closed 1.7 percent higher at 644 pence, boosted by the bid talk and a price target upgrade by Deutsche Bank to 750 pence a share from 710p.
"There are a few speculative stories around about Barclays - a possible take-over," said Lawrence Peterman, Investment Director at brokerage Eden.
Among other banks, Standard Chartered climbed 2.3 percent after the Asia-focused bank bought an 81 percent stake in Pakistan's Union Bank, sealing the biggest purchase by a foreign bank in Pakistan.
Broadcaster ITV was the top blue chip gainer, closing 4.3 percent up after announcing higher pretax profit that came broadly in line with expectations. Traders said the shares were rallying after being sold down in the run-up to Tuesday's resignation by Chief Executive Charles Allen.
"They've got the CEO thing out of the way and they're getting someone new in. Hopefully they'll have some bright ideas. There is some bid speculation around in the company and that is underpinning the share price," said a trader.
The FTSE 100 index closed 42.4 points higher at 5,860.5, rebounding from a session low of 5,778.2, although traders said business was thin and largely reflected moves on Wall Street.
"We're just tracking the New York market, we're pretty rangebound," said Peterman, advising caution on the interest rate outlook. "We feel that interest rates will probably have to go up again, maybe in October, November."
"It's a bit of a pickup with Wall Street. I'm looking at a fairly non-descript day. It's a thin summer's day on negligible volumes," said a trader.
Oil giant BP closed 0.9 percent higher, recovering some of the previous day's losses as the crude price steadied after easing from record highs on Tuesday on speculation that some output from BP's closed Prudhoe Bay field could be maintained.
Shares in British Airways rose 3.1 percent after a price target upgrade from investment bank UBS, which said the company was poised to achieve operating margins of 10 percent by 2008.
"We think a strong revenue environment, capacity reduction and settlement on the pensions issue makes the target achievable," the bank said in a note.
Miners hung back from the rally with BHP Billiton down 0.9 percent and Rio Tinto off 1 percent after workers at the Escondida copper mine in Chile said salary talks had failed to produce a deal. The mine is majority owned by BHP and Rio Tinto holds a 30 percent stake.
Elsewhere in the sector Xstrata fell 1.2 percent.
"We think commodity prices are overvalued at the moment by as much as 50 percent," said Henk Potts, analyst at Barclays Stockbrokers.
Internet gaming companies showed big losses amid concerns an Austrian rival might lose its German betting licence.
A newspaper report said online betting firm Bwin may have its German licence withdrawn, sending Bwin shares down nearly 30 percent. PartyGaming fell 5.1 percent and 888 Holdings lost 5 percent.
The online gaming industry has been under persistent pressure in recent weeks, after the former chief executive of BETonSPORTS was arrested in the United States. He has pleaded not guilty to racketeering and other charges.
The FTSE 100 would have closed 12 points higher but for a bunch of shares trading ex-dividend. Shares to trade stripped of the right to the latest dividend payout included banks Lloyds TSB and HBOS, along with energy firm BG Group and drugs giant AstraZeneca.
Among mid-caps, food equipment maker Enodis slumped 17 percent after saying take-over talks with a potential bidder had ended.
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