* FTSE 100 up 1.0 percent
* Vodafone rises on 260 pence-per-share bid talk
* Verizon, AT&T reported as potential bidders for Vodafone
* ICAP climbs on readacross from Nasdaq's eSpeed purchase
* Index gains cautious with FTSE near five-year highs
By David Brett
LONDON, April 2 M&A expectations helped push
Britain's top share index back towards five-year highs by
mid-session on Tuesday, with heavyweight Vodafone rumoured to be
the subject of a multi-billion-pound breakup bid.
Vodafone rallied 4.2 percent after the Financial
Times Alphaville blog cited "usually reliable people" as saying
that Verizon Communications and AT&T had been
working together on a breakup bid for the British group.
The bid would be pitched at about 260 pence a share, around
a 40 percent premium to the current price for Vodafone, the
world's second largest mobile operator.
Vodafone's weighting accounts for around 6 percent of the
entire FTSE 100 and the company's shares added nearly 17
points alone to the index on Tuesday.
London's blue chips climbed 64.21 points, or 1.0 percent to
6,475.95 by 1137 GMT.
"I do not think there is an M&A premium in the market at the
moment, but if companies were to come into the market and say
'we think companies are good value and we want to use our strong
balance sheets to make acquisitions', then that could push the
market even higher," said James Humphreys, senior investment
manager at Duncan Lawrie Private Bank.
Interdealer broker ICAP, hit hard by a recent profit
warning, rebounded 7.1 percent after traders reassessed the
company's value following a move by U.S. exchange operator
Nasdaq to buy rival electronic Treasuries-trading
platform eSpeed from BGC Partners.
Valuing ICAP's BrokerTec platform on a similar revenue
multiple to eSpeed implies the business is worth about 1.6
billion pounds, equivalent to three-quarters of ICAP's current
market cap, Shore Capital said in a note.
"The read-across from this deal is essentially positive for
ICAP because it underscores the value inherent in its electronic
broking assets," it added.
A revival in merger and acquisition activity and continued
stimulus measures from world central banks helped equity markets
rise in early 2013, despite a resurgence of the euro zone debt
crisis which saw Cyprus bailed out on tough terms last month.
But investors are becoming more cautious in their asset
allocation, with defensive sectors such as healthcare, tobacco
and utilities leading gainers in recent weeks as worries about
Humphreys at Duncan Lawrie said defensive sectors continue
to offer better relative value than more cyclical plays such as
banks, and that he would be buying into good quality companies
like credit-checking firm Experian, testing group Intertek
and the world's biggest catering firm Compass,
in part as protection against a market correction.
European equity funds posted their biggest outflows in more
than six months during the week ending March 20 as a threatened
levy on all bank deposits in Cyprus raised fears of bank runs in
other indebted euro zone countries, EPFR Global data showed.
Central bank stimulus continues to provide support for
equities, however, and is helping to drive a slow rotation into
the asset class from fixed-income and money market funds,
according to JPMorgan strategist Mislav Matejk.
"The asset rotation is likely to provide the underlying bid
to the market in the face of potential seasonal volatility.
Having said that, we recognise that global equities are sitting
on strong six-month gains, and some consolidation would not be
unhealthy," he said in a note.
(Editing by Catherine Evans)