Leading UK shares closed higher on Wednesday, supported by a batch of positive trading updates and hopes of fresh merger activity as insurer Prudential confirmed it was in sale talks over its Egg unit.
Prudential, which rose 4.4 percent, said it was in preliminary talks over the possible sale of its majority stake in online bank Egg. Egg shares, already up strongly on talk of a bid from US credit card firm MBNA, doubled gains after the Prudential statement to close 35 percent higher.
A report from plumbing firm Wolseley that many of its businesses had outperformed their markets and news that electrical retailer Dixons beat forecasts with higher Christmas sales helped end a three-day FTSE losing streak triggered by disappointing US jobs data last week.
Wolseley closed 5.9 percent higher and Dixons added 5.3 percent, the leading gainers in a FTSE-100 index which closed 21.3 points higher at 4,461.4.
Market watchers said news of a narrower US trade deficit had given the market support, while a strengthening of the dollar was seen positive for the FTSE's many dollar-earners.
"We are seeing signs of a pick up in M&A and we do expect that to continue throughout the course of this year, so that's definitely a positive for the market," said Robert Parkes, UK equity strategist at HSBC Securities.
TELECOMS GAIN: Telecoms firm Cable & Wireless was a major gainer, rising five percent after a report that its deal to sell US web hosting and Internet assets to a US buyout firm had attracted a number of other would-be buyers, potentially boosting proceeds from the deal.
Talk that Cable & Wireless might be sizing up mid-cap Colt Telecom added impetus to a 5.2 percent gain in Colt's shares.
Dealers said hopes that Colt was on course to meet expectations of strong sales in forthcoming quarterly figures had prompted early gains in the shares.
Mid-cap sports retailer JJB rose 12.8 percent after it announced plans to return up to 40 million pounds to shareholders and increase its final dividend by 40 percent.
Other mid-caps to outperform the broader market included steel group Corus, up 8.5 percent after a rally in European steel shares on expectations for strong demand and rising prices for steel this year.
Blue chip retailer Marks & Spencer ended with a slender gain of 0.7 percent, with investors relieved that its report of grim Christmas sales only confirmed expectations.
"Marks & Spencer's statement was pretty weak but the share price hasn't really reacted, which implies that a lot of the bad news was in the price there. The update wasn't as bad as feared so (it was) a bit of a relief rally," said HSBC's Parkes.