Robust banking stocks drove UK stocks higher on Tuesday, led by HBOS after Britain's fourth-biggest bank said full-year earnings would beat forecasts and also helped by a strong showing from the retail sector.
Clothing retailer Next added 2.6 percent as rumours of private equity interest in the high-street chain swirled around the market. Analysts said a British Retail Consortium survey showing UK like-for-like sales rising last month for the first time since March was also a positive sign, while recent cold weather was also probably helping sales.
"The colder weather has also been reflected in the pattern of Next's buyback activity in the cash market, which has become notably more aggressive in the last few weeks. This suggests to us that the company feels that the share price is discounting too much bad news," CSFB said in a research note.
But PartyGaming was a drag on the market, finishing down 2.1 percent after rival gaming group Empire Online launched legal proceedings in Gibraltar's High Court against its former partner. The legal action follows PartyGaming's decision in October to ringfence its own poker players from those of four "skin sites" such as Empire - Web sites that used PartyGaming's poker software to power their own online poker rooms.
The FTSE 100 share index ended up 28.4 points at 5,538.8, rebounding from Monday's 18-point drop and coming within striking distance of 5,554.9 points, the index's highest levels since August 2001.
"Most investors are reasonably optimistic for next year," said John Smith, head of equities at investment bank Brown Shipley. He pointed to a string of offers for UK companies including ports operator P&O and mobile phone group O2 as key supports for the market.
"With no major series of rights issues, lots of companies doing buybacks and bids for cash, there is a lot of underlying equity being withdrawn from the market so clearly if equity is being withdrawn because of cash bids and buybacks, the same amount of institutional demand is chasing fewer stocks."
Take-over fever gripped mid-cap stocks, including recruitment group Michael Page , up 4.4 percent on renewed talk of bid interest from Swiss employment firm Adecco .
Forth Ports ended up 3.5 percent on speculation of a 855 million pound, or 1,900 pence per share, cash offer from private equity for the ports operator - talk fuelled by bid interest in industry peers P&O and PD Ports.
Several oil explorers also headed higher, with Dana Petroleum leading the mid-cap risers' list with a 9.2 percent gain on news the firm had struck oil at an offshore site near Mauritania.
Tullow Oil added 5 percent after the firm announced that it, too, had struck oil at the same site.