Britain's top shares surged for a third straight day on Tuesday to their highest level in 28 months, led by Man Group as speculation swirled that a major US financial group was casting an eye on the hedge fund manager.
Man jumped 3.8 percent as dealers said talk of bid interest gathered momentum, backed up by hopes that data later on Tuesday would show its key AHL fund had benefited from resurgent stock markets. Man declined to comment.
British Airways bucked the buoyant mood and fell 3.1 percent after the airline said its premium traffic fell 0.2 percent in September, dampening news of a 3.6 percent rise in overall traffic during the month. Dealers said a cautious outlook from BA also disappointed investors looking for more upbeat guidance.
The FTSE-100 share index closed up 25.3 points, or 0.5 percent, at 4,707.1, to extend its rally so far in the fourth quarter to 3 percent. The index hit 4,714.9 during the morning, its highest level since June 2002 but trimmed gains after a weak start on Wall Street.
Dealers said bid speculation, big share buyback programmes, a belief that UK interest rates are near a peak and strength among the heavyweight oil, mining and banking stocks have all helped drive UK shares higher and outperform other markets in recent weeks.
"The key in the third quarter and the recent strength has been some of the large caps," said John Smith, chief investment officer at Solus Fund Managers. "We're dependent on the large cap stocks, and they've had such a run-up recently we're probably due for a pause now."
Oil major BP continued to benefit from high oil prices, which ratcheted back above $50 a barrel to fuel worries that economic growth and company earnings could be derailed. But the high price was good news for oil stocks, and the sector added 16 points to the FTSE.
BP rose 2.7 percent as it was further supported by Morgan Stanley, which started coverage on it with an "overweight" rating. "BP is expensive, but with good volume growth, the buyback and management reputation, we see room for the valuation gap to widen in a strong macro environment," the bank said.
The prospect that miner BHP Billiton and spirits giant Diageo will join the list of companies buying back their own shares lent further support, with BHP adding 2.1 percent after saying it would buy back up to $1.1 billion of its Australian-listed shares, which should provide a knock-on boost to its London shares.
Food retailer J. Sainsbury remained under pressure and lost 1.5 percent after news that its finance director would leave next year stoked talk that Sainsbury would warn later this month that profits would miss expectations, dealers said.
Media stocks were also weak, with broadcaster ITV down 3.2 percent as dealers cited concern that current advertising spending is showing few signs of recovery. But technology stocks were led higher by software firm Sage Group, up 3 percent in the wake of upbeat comments this week from its US peers.
Engineer Invensys led mid-caps with a 12 percent leap after a reassuring trading statement outweighed news that it was recalling one of its valves, but online travel operator Lastminute.com shed 8 percent as investors continued to exit in the wake of its acknowledgement of a tough summer.