Bullish results help Britain's FTSE extend gains
* FTSE 100 up 0.2 percent
* Melrose, Admiral rally post results
* Vodafone surges on Verizon speculation
* Ex Divs knock 7.6 points off potential gains
By David Brett
LONDON, March 6 (Reuters) - Britain's top share index attacked fresh highs early on Wednesday, led by strength in heavyweight Vodafone and engineer Melrose, which posted strong results.
By 0847 GMT, London's blue chip FTSE 100 index was 15.17 points, or 0.2 percent higher at 6,447.12, having closed above 6,400 points for the first time in over five years, helped by support from central banks.
"Central bank promises to maintain stimuli continue to be the main influence, and with technical indicators pointing towards the 6,550-level investors will be looking for economic releases to confirm this potential," Mike Mason of Sucden Financial Private Clients said.
British house prices rose 0.5 percent in February from January, according to mortgage lender Halifax, which said it had become more positive about the outlook for the property market for the rest of the year.
Investors are watching growth data from the euro zone due at 1000 GMT, which could spur further gains, while U.S. ADP Employment data at 1315 GMT will be closely watched as an indication for Friday's big monthly jobs report.
Engineering turnaround specialist Melrose rallied strongly, up 6.3 percent after it reported a 38 percent increase in full-year profit.
Car insurer Admiral climbed 5.6 percent after posting a 15 percent rise in annual profit and raising its total dividend by 20 percent.
"Admiral has reported a 4 percent beat versus consensus on earnings per share and dividend ... a beat is a beat, and we expect the shares will react well to this news, however at 13.3 times 2012 price-to-earnings and limited growth given the outlook, we still see the valuation as stretched," analysts at Esprito Santo said in a note.
While there was an element of "short covering" in Admiral's share price move - ahead of the results, Admiral had the ninth-highest utilization rate in the FTSE 100, with nearly 15 percent of lendable shares out on loan, according to Markit data - investors remain hungry for yield, with other asset classes such as "safer" bonds and cash offering little or no return at all.
"Our optimistic medium-term outlook for equities is based on the assumption that equities will rise while bonds sink (and their yields increase)," Paul Jackson, analyst at Societe Generale, said in a note.
When screening for equities to buy, Jackson suggested looking at companies where the dividend yield is comfortably higher than the respective bond yield and those favouring beta and positive correlation with bond yields.
Heavyweight Vodafone added 4.5 percent on a Bloomberg report that Verizon Communications has weighed several options involving its relationship with the mobile telecoms firm.
"Whereas it is entirely likely that the inflated levels of commentary are simply a function of a bored press at present, there are some interesting signals across the asset classes," Simon Maughan, strategist at OliveTree Financial Group, said.
"Credit markets are starting to expect a change to the status quo regarding Verizon Wireless and equity vol markets are also beginning to price in some potential," he said.
Companies trading without their entitlement to the current dividend - including BHP Billiton, CRH, Rio Tinto, Shire and Tui Travel - took 7.6 points off the index on Wednesday, according to Reuters calculations at current market prices.
Strategists warned, however, that a recent rally which has seen markets across Europe hit multi-year highs, could be close to an end as upbeat investor sentiment is running ahead of a convincing turnaround in fundamentals of the macro economy.
"Sentiment has been an excellent contrarian indicator. U.S. equities reaching new price highs ... is a useful catalyst to reassess sentiment and fundamentals to ascertain if the rally continues," said Gerry Fowler, global head of equity Strategy at BNP Paribas.
"We think it will not go much further over the coming months before we get a meaningful pullback and we would expect European equities to perform worse into a pullback," he added.
(Editing by Catherine Evans)
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