M&A talk among the travel, telecoms and mining sectors helped Britain's top shares to their biggest daily gain in almost two months on Wednesday, as strong manufacturing data from the U.S. and China boosted sentiment.
The FTSE 100 closed up 141.19 points, or 2.7 percent at 5,366.41, its strongest daily performance since July 6 and extending Tuesday's 0.5 percent gain.
The UK benchmark closed above its 50 percent Fibonacci retracement level of the peak in April to the low on July 1 for the first time in two weeks.
Volumes were low, however, with the FTSE trading 84 percent of its holiday-thinned 90-day average. The index is down 0.9 percent so far in 2010.
M&A talk was behind the bulk of the top risers. Travel company TUI Travel climbed 7.5 percent after the Financial Times Deutschland reported majority shareholder TUI AG was considering buying the shares in the company it does not already own.
A lot of companies have got quite a lot of cash and it's not actually earning them anything, Rupert Armitage, director at Shore Capital said.
There are companies that are vulnerable because they don't have the same structure or balance sheet, so I think they are using that as an opportunity.
Telecoms firm Cable & Wireless Worldwide rose 7.7 percent, with traders citing market talk of bid interest from U.S. rival AT&T. The British firm would not comment.
GOING FOR GOLD
Miners were in demand, with Fresnillo up 2.7 percent as well-worn talk of bid interest from Mexican Tycoon Carlos Slim was aired again in the Daily Mail's market report.
The sector gained in tandem with metal prices, which were underpinned by robust manufacturing data from China, the world's largest consumer of metals, and the United States, the world's largest economy.
China's official purchasing managers' index rose to 51.7 in August from a 17-month low of 51.2 in July, while Australia's economy grew a stronger than expected 1.2 percent in the second quarter.
The U.S. manufacturing sector grew more quickly than expected in August, chalking up a 13th straight month of expansion, according to an industry report released on Wednesday.
What we're seeing is people taking a slightly longer term view and looking at sectors as a whole that might push us better in the coming months, Giles Watts, head of equities at City Index said, pointing to the reweighting towards miners.
U.S. mortgage applications for home purchasing and refinancing increased last week as interest rates hit a new low, a glimmer of hope for a housing market that has failed to find footing in the absence of government support.
Retail investment firms also lent their support with JPMorgan Cazenove arguing there was pockets of value to be bought into and named blue chip Land Securities among its top picks.
Land Securities climbed 4.8 percent after JPMorgan Cazenove raised its rating on the stock to overweight from neutral, and said it offered 30 percent upside along with mid cap developer Capital & Counties.
Positive broker sentiment helped Intercontinental Hotels up 6.2 percent, with Morgan Stanley lifting its rating on the firm to overweight from equal-weight.
(Editing by David Cowell)