The FTSE 100 index of Britain's leading shares ended up 0.8 percent on Tuesday, buoyed by take-over talk as investors shrugged off continued security concerns after terminal 4 at London's Heathrow airport was evacuated.
The FTSE closed 49.2 points higher at 6,639.8 as data earlier in the session showed that growth in Britain's construction sector accelerated in June to its highest rate in 3-1/2 years.
Mining stocks supported, with Lonmin hitting an all-time high as traders cited continued market talk of a possible bid from fellow miner Xstrata, and rising metal prices. Lonmin added 3.1 percent, Xstrata climbed 1.5 percent, Antofagasta was up 2.9 percent and Anglo American tacked on 2.1 percent.
"It's been a very solid performance across the board (but) nothing really to get to grips with," David Scott, a senior stocks broker at Redmayne-Bentley. "Maybe a bit of squaring off has been done - it's half a day mostly today (in the US) so that's more akin to it rather than anything else."
In other news, the evacuation at Heathrow after a suspicious package was found followed two car bombs found in central London on Friday and attacks on an airport in Scotland on Saturday by members of a suspected al Qaeda cell. "This looks very much like an oversold rally with market makers making good use of their blue pens," said David Buik at Cantor Index. "The market is determined not to be undermined by the terrorism threats in London, Glasgow and Heathrow."
Home Retail added 3.2 percent, with dealers pointing to continued talk of private equity interest.
In June, private equity group CVC was linked with a move for Britain's biggest household goods retailer, which also held its annual general meeting on Tuesday.
United Utilities rose 1.4 percent as traders cited bid interest surrounding the stock. United Utilities declined to comment. Investors said there was market talk of an 880-pence-per-share bid, with one trader saying private equity was eyeing the utility.
But with little on the corporate calendar to boost shares, traders looked to the start of the Bank of England's (BoE) two-day monetary policy meeting on Wednesday, with US markets closed for Independence Day.
The dollar hit another 26-year low against sterling, as investors widely expected the BoE to raise interest rates to 5.75 percent on Thursday, with a further rise before the year's end. In midcaps, Brewer Greene King added 7.9 percent after it offered shareholders a 100 million pound ($202 million) special payout via a planned spinoff of around a third of its pubs.
The group, brewer of Old Speckled Hen and Abbot Ale, met forecasts with a 17 percent rise in annual pretax profit and also said it was well prepared for the English smoking ban which was introduced on Sunday.
In related stocks, Punch Taverns gained 3.4 percent and Enterprise Inns climbed 2 percent. On the downside, gas producer BG Group fell 0.9 percent after UBS downgraded the stock to neutral from buy but raised its price target to 900 pence from 875 pence. Paper producer Mondi led the losers, falling 2 percent after it was spun off and listed in London and Johannesburg.