Britain's leading share index ended up on Tuesday recovering early losses as slightly weaker-than-expected US inflation data lifted sentiment, while merger activity sent Hanson and Reuters higher. The FTSE 100 closed up 13.1 points, or 0.2 percent at 6,568.6, drawing strength from stronger US stocks. European shares also ticked higher.
"The market had a strong run over the last few weeks. It is basically having a bit of a pause before deciding which direction it wants to go in," said Graham Secker, UK equity strategist at Morgan Stanley. The Dow Jones industrial average hit an all-time high as data pointed to a stabilising inflationary picture.
Investors are likely to set their sights on Wednesday's Bank of England inflation report for further clarity on local interest rates after the central bank raised borrowing costs by quarter of a percentage point to a six-year high of 5.50 percent last week.
M&A activity took the spotlight, with Germany's HeidelbergCement AG agreeing to buy Britain's Hanson for 8 billion pounds to create the world's second-largest construction materials company. Hanson rose 4.7 percent.
Reuters put on 3.4 percent after Canadian publisher Thomson Corp agreed to buy it for about 8.7 billion pounds to create the world's biggest financial news and data group. Pharmaceuticals were the biggest winning sector, contributing nearly 30 percent of the index's gains, after Goldman Sachs upgraded its recommendation on GlaxoSmithKline to "neutral" from "sell".
GlaxoSmithKline put on 0.4 percent and AstraZeneca added 1.4 percent. Oil shares weighed despite firmer Brent crude. Index heavyweight BP slipped 0.7 percent and Royal Dutch Shell dipped 0.6 percent. In the mining sector, Rio Tinto fell for the second day in a row, down 1.3 percent as speculation that BHP Billiton was interested in the world's second biggest mining group waned.
Lonmin slipped 0.8 percent, but Kazakhmys advanced 1.8 percent, BHP Billiton gained 0.7 percent and Vedanta Resources added 2 percent. Enterprise Inns surged 5.9 percent to top the FTSE 100 gainers after Britain's second-biggest pub owner said it was exploring ways to convert to tax-efficient REIT status without splitting its property holdings into a separate company.
The announcement also lifted Britain's biggest pub group Punch Taverns' shares 3.1 percent. Among other individual movers, Reed Elsevier put on 1.7 percent to 677 pence after ABN Amro raised its price target on the Anglo-Dutch publisher to 795 pence from 640 pence as it said the company was regarded by some as the "perfect LBO". ABN put a bid price of 785 pence a share on the firm. Unilever shed 1.3 percent after Deutsche Bank cut its rating on the consumer products group to "hold" from "buy".
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