Britain's top share index rose 1.3 percent on Friday as high oil and metal prices boosted commodity shares, while M&A talk propelled Resolution, Kingfisher and Standard Chartered higher. The FTSE 100 closed up 85 points at 6,661.3, after rising 1.5 percent in the previous session. The UK benchmark index gained 2 percent this week and is up more than 7 percent so far this year.
European shares also finished higher for the day. "There is an increased expectation that the Federal Reserve will reduce interest rates next week and possibly further after that. That is generally lending support to the market at the moment," Darren Winder, equity strategist at Cazenove, said, adding that valuations remained attractive.
Commodity shares added 57 points to the index as oil prices rallied to fresh record high and metal prices firmed. Oil major BP advanced 2.7 percent and its rival Royal Dutch Shell climbed 3 percent. Gas producer BG Group added 2.6 percent.
In the mining sector, BHP Billiton, Rio Tinto, Anglo American, Xstrata, Vedanta Resources, Antofagasta and Kazakhmys all rose. Banks were another standout sector gainer, helped by comments from Countrywide Financial Corp that it expected to be profitable in 2008. The stock had earlier been beaten down by a third-quarter loss following deterioration in the US housing market.
Barclays, HSBC, Lloyds TSB, Northern Rock and Alliance & Leicester were all up. StanChart climbed 4.9 percent to hit a record high as traders cited market talk that the Bank of China was interested in the Asia-focused bank. StanChart declined to comment, and a Bank of China official said he had not heard of any potential investment in StanChart.
Building and plumbing products distributor Wolseley, which has a large presence in the US housing market, gained 3 percent on the back of the Countrywide comments. Insurer Resolution gained 2.4 percent after rival Pearl made a 4.9 billion pound cash offer for the company in a move aimed at thwarting a deal between Resolution and Standard Life agreed just hours earlier. Standard Life put on 0.8 percent on market expectations that the insurer might not win the battle to acquire Resolution.
In other M&A related news, retailer Kingfisher rose more than 7 percent to top gainers on the FTSE 100 after traders cited talk of bid interest. The company declined to comment.
Sainsbury lost 3.2 percent to top the FTSE 100 losers after the Take-over Panel set a November 8 deadline for Qatari investment fund Delta Two to make a firm bid for the supermarket group or walk away. BAE Systems slipped 2.3 percent after Goldman Sachs removed the defence contractor from its pan-European "conviction buy" list.