Britain's top shares rallied on Tuesday to claw back some of last week's steep fall, lifted by the prospect of a take-over of services conglomerate Rentokil Initial and robust performances by the big drug and oil sectors.
London-listed insurer Old Mutual also gained almost 2 percent after saying it had held talks with Swedish savings group Skandia about a possible $5.7 billion take-over.
Old Mutual said it had the support of Skandia's biggest shareholders, and its shares climbed higher after a source close to the negotiations told Reuters it was unlikely to sweeten its proposal, soothing worries it could get drawn into overpaying.
The FTSE 100 share index closed up 27.7 points, or 0.5 percent, at 5,255.8 to halt its run of four successive falls before the long UK holiday weekend. Stocks opened strongly after a positive start to the week by US shares on Monday, and held on to most of their gains despite an early dip on Wall Street.
The heavyweight oil sector contributed 16 points to the FTSE's advance as crude prices leapt to near $71 a barrel after Hurricane Katrina swept through the Gulf of Mexico. Although the damage was not as bad as many had feared, it still left oil and gas production at a standstill in the area.
Oil major BP climbed 2 percent as it benefited from the high price and said its major US platform Thunder Horse seemed to be stable in the wake of the hurricane. Shell shares added 1 percent and BG firmed 2.1 percent.
Equities continue to show resilience in the face of this summer's rising oil price, but some said the latest move would rekindle worries about the knock-on effect on earnings growth.
"Over the next 2-3 months it could be a tall order to see some meaningful progress out of the large cap index because the oil price is getting into a range where you feel sentiment is starting to be affected by its possible impact on global growth," said Paul Kavanagh, head of market strategy at stockbroker Killik. "At $70 you'd start to see that weighing on investor sentiment."
But the worry about the impact on growth also helped some sectors, with dealers suggesting it encouraged a shift back into drugs stocks, helping AstraZeneca and GlaxoSmithKline both add about 2 percent. "The inclination is to say growth could slow and people may want to pick up pharmas as a more defensive holding," one dealer said.
Shares in Rentokil topped the FTSE leaderboard with a 2.7 percent jump after Raphoe, a company led by UK businessman Gerry Robinson, said it was continuing to work on a possible take-over offer for Rentokil and that it intended to discuss making an offer.
Hotels firm Hilton, which owns the Ladbrokes chain of betting shops, gained 2.3 percent after investment bank Morgan Stanley lifted its price target on the shares. Dealers said a fall by Hilton shares last week after a drop in profits at its betting division had been overdone.
Glassmaker Pilkington was among the top performing mid-cap stocks as speculation of a possible take-over from Japan's Nippon Sheet Glass resurfaced, dealers said. Its shares added 4.1 percent to 132-1/4p, but pulled back from a peak of 135p after a source close to the company said it was not in take-over talks.
But Computacenter sagged 4.1 percent after US fund manager Fidelity said it had trimmed its stake in the company to just under 4 percent with the sale of more than 2 million shares, while fund manager Aberdeen Asset Management slipped 1.4 percent after Cazenove placed 5.9 million shares in the company worth about 9 million pounds, dealers said.