The FTSE 100 index of Britain's largest shares hit a five-and-a-half year closing high on Thursday, ending up 0.4 percent after a US pricing report eased inflation worries across the Atlantic.
Shire figured among the top gainers, up 4.2 percent after the Business magazine reported, without citing sources, that AstraZeneca was considering a take-over bid for the smaller British drugmaker, though analysts were sceptical.
Stock markets across Europe gained on soft US inflation data. The US Labour Department's Consumer Price Index, excluding food and energy, showed that a drop in energy prices had helped pull consumer prices down by a bigger-than-expected 0.5 percent in October, which may comfort Federal Reserve policy-makers, who are expected to leave interest rates unchanged when they meet next month.
"The consumer prices signal that inflationary pressure is easing in the United States," said Rainer Sartorius, an economist at HSBC in Dusseldorf.
"The threat of further interest rate hikes should be over for now. The data is calming markets." Britain's main energy network operator National Grid topped the FTSE 100 leaderboard, adding 6.7 percent after posting pretax, pre-exceptional profit of 872 million pounds ($1.65 billion). Rivals Kelda Group rose 1.9 percent.
"The results were better than the market was expecting," said Exane BNP Paribas analyst Jonathan Mirrlees-Black.
The FTSE 100 closed up 6,254.9 points, or 25 points, at 0.4 percent, its highest closing level since February 2001. "It spiked up because of the US consumer figures, which suggested that a rate cut in March is greater now," said Dudley Cochran at Man Spreads Trading.
"The way things are going at the moment, the market wants to go higher, especially as there is less chance of a rate increase, which will fuel the fire and push it even further up," he added. Elsewhere, insurer Old Mutual rose to its highest level since May, up 3.6 percent, as it continues to benefit from positive results from South Africa's Nedbank in which it owns a majority stake.
"The Nedbank results were quite good, and someone upgraded them on the back of the stronger rand," an analyst said. Nedbank, South Africa's fourth-biggest bank in terms of assets, reported a rise in headline earnings per share for the first nine months of the year on Tuesday. A UBS upgrade on rival insurer Legal & General, which ticked up 2.4 percent, also boosted the sector, traders say. Royal & Sun rose 0.8 percent.
British retail sales rose more than expected and at their fastest pace in almost a year in October, the Office for National Statistics said, which helped Next shares rise about 2.6 percent, and Home Retail Group's rise about 1.4 percent.
Miners rose, lifted by rising gold and as US crude oil prices firmed near $59 dollars a barrel after a larger-than-expected draw in US fuel stocks and on signs that Opec may cut production again next month.
Lonmin bounced about 1.7 percent, recovering from a results-driven dip in the previous session, while Xstrata added 0.7 percent. But Vedanta bucked the trend, leading the FTSE 100's list of losing shares, tumbling 7 percent on fears of earnings dilution from its planned $1.9 billion investment in a power plant in India, despite reporting half-year earnings slightly above the consensus forecast.
A pollution row involving Vedanta's majority owned Konkola Copper Mines (KCM), Zambia's biggest copper producer, forced the suspension of operations at its Nchanga open pit mine after a state body withdrew part of the company's licence, officials said on Wednesday.
Reed Elsevier fell 4.6 percent after the Anglo-Dutch publisher said it was on track for 2006 targets but its education unit would not meet previous expectations.
Shares in British Energy fell 3 percent as investors cited nerves and profit-taking ahead of its results on Friday. The market was also worried about an update due on the same day, on boiler tube cracking problems at two of the company's nuclear plants, which caused its share price to plummet in October. "People are genuinely worried about what they are going to say tomorrow," a trader said. "There seems to be a little bit of risk being priced."
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