LONDON'S Footsie rose to its highest level for two and a half years yesterday amid market rumours of a bid from oil giant Shell for rival BP.
Heavily weighted BP rose 3 per cent as traders cited vague speculation of Shell's interest in its closest competitor.
The talk added to cheer over positive retail data from the US to send the FTSE 100 index up 30.46 points or 0.5 per cent to 5,891.21, its highest point since June 2008.
Mic Mills, head of electronic dealing at ETX Capital, said: "Volumes remain thin, but the FTSE keeps going up, with oils adding the main fuel, although whether the 5,900 level can be breached without more momentum is a big question."
The FTSE 100 index had been sluggish in early trading, but was lifted when the US commerce department said retail sales rose 0.8 per cent last month, beating expectations that they would rise by 0.5 per cent.
Wall Street's Dow Jones Industrial Average was up 0.6 per cent in early trading following the news, which also strengthened the dollar and saw the pound fall to $1.58.
Sterling slumped against the euro to €1.18 following strong industrial data from Germany.
In the UK, oil giant BP climbed 3 per cent - or 14.8p to 473.1p - on the potential Shell bid interest rumours, although there was no comment from either firm. Shell rose 28.5p to 2,081.5p.
BP shares were also supported after it entered into an agreement to sell almost all of its exploration and production assets in Pakistan to United Energy Group.
The asset sale will help the group pay for the clean up of its disaster in the Gulf of Mexico.
The oil sector was helped further by an upbeat note from broker Credit Suisse.
Scottish & Southern Energy gained 14p or 1.2 per cent to close at 1,150p after newspaper reports of revived possible takeover interest in the utilities giant.
But Whitbread was suffering a less cheery session, topping the fallers board after revealing that a strong performance from coffee shop chain Costa was offset by a deterioration in sales trends at the company's Beefeater and Brewers Fayre restaurants arm.
Despite posting figures in line with expectations, the Costa and Premier Inn owner dropped 3 per cent or 50p to 1,740p.
It was also another strong day of trading for the FTSE 250 Index, which set a fresh three-year high.
Investors were reassured by an update from Wickes owner Travis Perkins, which lifted 25.5p to 997.5p after exceeding analyst forecasts with a 6.5 per cent increase in group revenues.
In the FTSE 250 index, flooring firm Carpetright fell 14p to 782p after it reported a 28 per cent drop in half-year profits to 10 million and said it did not expect a pick-up in trading conditions in 2011.Meanwhile, gambling firm Betfair continued its poor run of form on the stock market after it revealed revenues would be hit by the big freeze.
In its first set of results as a publicly-listed company, Betfair said cancelled race meetings in the current quarter would moderate growth rates.
The firm's shares fell 191p to 990p - and have now declined by more than 30 per cent since it floated in October.