Britain's benchmark share index rose 0.2 percent on Wednesday, guided upwards by a stellar performance from Vodafone, and as banks helped bolster gains on European stock markets.
Vodafone hit a three-month high, up 3.7 percent, on relief that the British mobile phone giant looked to have missed out on the purchase of France Telecom's Dutch Orange business, thus avoiding a bidding war, traders said. Telecoms firms Cable & Wireless and BT added 2.7 and 2.8 percent, respectively.
Britain's FTSE 100 snapped two sessions of losses to close up 9.8 points, or 0.15 percent at 6,616.4, while Wall Street also rose. Strategists ascribed much of the day's upside to investors' speculative whims and remained cautious about the fundamental outlook for the UK stock market.
"It feels very much like a late-cycle rally, because it's not really being underpinned by fundamentals. It's liquidity flows, it's speculation," said Peter Dixon, an economist at Commerzbank. Graham Secker, UK equity strategist at Morgan Stanley said he expected the market to come under pressure in coming months:
"The equity market's now gone through our year-end target so the traditional rule of selling in May and going away will probably play true this year." Taking centre stage on the economic front, minutes from the Bank of England showed some of its policymakers considered voting for a half-point hike in borrowing costs this month before all nine decided to raise rates a quarter point and agreed that a further increase may be needed in time.
The BoE raised borrowing costs by a quarter of a percentage point to 5.50 percent at that meeting. Helping the FTSE to tread positive territory, banks gained after US Treasury Secretary Henry Paulson said the correction in the US housing industry was "largely past".
The housing sector is perceived as a key engine of US economic growth and recent signs that it was slowing have made markets nervous about the health of the world's largest economy. HBOS was up 0.8 percent, Barclays ticked up 0.4 percent.
Tate & Lyle was the day's top loser, diving 6.2 percent after the sugar and sweeteners maker reported a 14 percent rise in annual profits but warned that profit growth this year from its zero-calorie sweetener sucralose would only be modest. GlaxoSmithKline lost 2 percent as UBS cut its price target and as the stock continued to suffer from the controversy surrounding its diabetes drug Avandia.
International Power, Next, Home Retail, Sainsbury and Unilever all fell after going ex-dividend. Experian Group advanced 2.3 percent after the credit-information firm posted a rise in full-year operating profit, just above forecasts, and said it expected sales growth for the current year at a "mid to high single-digit rate".
Also on the upside, shares in water company Kelda added 3 percent as traders cited continued bid speculation after a Merrill Lynch note on the company from Tuesday suggested that the firm may be a candidate for a leveraged buyout, with M&A activity expected within the sector this summer.
A Kelda spokesman said the company does not comment on market rumour or speculation. Shares in the world's biggest can maker, Rexam added 2.9 percent after ABN Amro raised its rating to "buy" from "hold" and maintained a 580 pence price target.