Britain's top share index ended up 0.5 percent on Wednesday as banks gained after a consortium led by Royal Bank of Scotland made a counterbid for ABN Amro and Sainsbury jumped on bid talk. The FTSE 100 closed 32.4 points higher at 6,461.9. European shares also finished up, while the Dow Jones industrial average broke through the 13,000 level.
The RBS-led consortium proposed a 72 billion euro ($98 billion) bid for Dutch bank ABN, threatening to thwart an agreed take-over deal by Barclays and triggering the biggest-ever bank takeover battle. Barclays climbed 1.6 percent, but RBS lost 0.8 percent. Elsewhere in the sector, HBOS surged 3.5 percent after Britain's biggest mortgage lender said it was confident of beating market earnings forecasts for 2007 after making a good start to the year.
Lloyds TSB, Alliance & Leicester, HSBC and Bradford & Bingley also rose, but Northern Rock shed 1.5 percent as it was trading without the right to dividend and after Deutsche Bank downgraded it to "sell" from "hold". "Our clients are almost unilaterally bullish. That's a big departure from where we were a month or two ago. It is a real turnaround," said Tim Hughes, head of sales trading at IG Index.
"All of our clients are trying to pick what's going to be next bid target ... in an environment with a lot of bid rumours flying. We have got very few people shorting at these levels."
The market was also underpinned by retailer Sainsbury, which leapt more than 7 percent to top the FTSE 100 gainers after market sources said a block of about 250 million shares or about a 14 percent stake in the company was traded at 575 pence.
This triggered bid talk and pulled other retailers higher. Marks & Spencer rose 2.2 percent, Morrison Supermarkets climbed 0.6 percent and Kingfisher put on 1.1 percent.
Shares in Cable & Wireless gained 2.2 percent to their highest since mid-2002 on market talk Germany's Deutsche Telekom was interested in making a bid, traders said. Deutsche Telekom was not immediately available for comment. Elsewhere, GlaxoSmithKline shed 0.5 percent after Europe's biggest drugmaker said profits dipped 1 percent in the first quarter as sales were hit by the strength of sterling and the loss of patent protection on key medicines.
Another drugmaker, Shire, however, posted higher-than-expected first-quarter revenues and nudged up its full-year estimates. Its stock climbed more than 5 percent to become the second best performer. Commodity shares were also in demand as raw material prices firmed. Index heavyweight BP was up 0.5 percent and Royal Dutch Shell tacked on 0.8 percent.
In the mining sector, Anglo American, BHP Billiton, Rio Tinto, Vedanta Resources and Kazakhmys advanced between 0.6 and 1.7 percent. Drax, Cadbury Schweppes, Centrica, Tesco and Xstrata, however, fell after going ex-dividend.