Britain's FTSE 100 index of leading shares closed up nearly 1 percent on Monday, as banks and M&A activity helped the market to continue to bounce back from a recent slump.
Rising bank stocks across Europe lifted the UK sector, after sources said Barclays and other banks were considering a take-over approach that could result in Europe's biggest financial services deal.
Lloyds TSB rose 2.6 percent after the Sunday Times reported it could sell its share-registration and stock-management business. Lloyds TSB declined comment. Standard Chartered was up 2.4 percent and HSBC put on 0.7 percent.
Barclays, which acknowledged speculation about interest in ABN AMRO, said it would make a statement before stock markets opened on Tuesday. Its stock ended 0.8 percent lower. The FTSE 100 closed 0.96 percent, or 58.8 points, higher at 6,189.4. The benchmark is 3.3 percent higher than a trough hit a fortnight ago as part of a global equities sell-off, but still down 0.5 percent so far this year.
"The financials are having a very good day. That's related to possible M&A activity and that's helped with the rerating of financial stocks throughout Europe," said Robert Parkes, a UK equity strategist at HSBC.
"We've argued all along throughout the sell-off that it was nothing more meaningful than a short-term correction and we think the market is moving higher from here."
Life insurer Prudential gained 3.9 percent to rank among the strongest performers on the FTSE, benefiting from a weekend newspaper report an activist hedge fund had bought into the company, fuelling new speculation it could face shareholder pressure to break up. Prudential declined comment.
The biggest loser was Imperial Tobacco, down after bid target and Franco-Spanish tobacco group Altadis rejected its take-over approach as being too low, leading to speculation of a higher offer.
Shares in the world's fourth-biggest cigarette firm closed down 1.9 percent. Britain's fourth-biggest supermarket Morrison fell 1.2 percent after several broker downgrades, traders said.
But Charles Deptford, manager of the Baring Equity Income and UK Growth funds, was optimistic about UK stocks. "Equities were not expensive before the recent declines when valued on forecast earnings. Compared with most other asset classes, UK equities offer good value - even more so now," he said. "Some potential downside risk exists if interest rates rise more than the market has factored in to prices. However, we are largely positive on the outlook for UK equities."
Investors will pay close attention to the US Federal Reserve's interest rate decision and the UK budget on Wednesday. Wolseley, the world's largest distributor of plumbing and heating products and building materials, supported the overall market after it reported a smaller-than-expected 8.3 percent fall in half-year pretax profit and said US non-residential markets remained solid. Its shares ended up 3.7 percent.

Copyright Reuters, 2007

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