* FTSE 100 ends 0.3 pct up, outperforms other Europe indexes
* Deal hopes buoy Smith & Nephew, Weir - traders
* Results disappointment hits Kingfisher shares
By Atul Prakash and Lionel Laurent
LONDON, May 29 Britain's top share index
advanced to trade near a 14-year high on Thursday, with takeover
speculation surrounding companies such as Smith & Nephew and
Weir Group lifting investors' appetite for riskier assets.
The FTSE 100 index finished 0.3 percent higher at
6,871.29 points, outperforming slightly lower benchmark indexes
in France, Germany, Italy and Spain. Trading volumes were just
39 percent of the index's 90-day daily average because of a
public holiday in many European countries.
The index ended just below the 14-year high scaled this
month and was less than 2 percent away from a record peak set in
1999. Analysts said the positive momentum following M&A talks
could help the index to set a new record high in the near term.
"The improving economic backdrop and the pick up in business
confidence are likely to be supportive for a pickup in M&A
activity," said Robert Parkes, equity strategist at HSBC.
"In addition, valuations are not stretched and there appears
to be an element of pent up demand as a result of the depressed
level of deal activity we have seen over the last few years."
Medical-devices manufacturer Smith & Nephew was the
top performer in the FTSE 100 index, up 3.6 percent,
extending Wednesday's gains after a press report of a planned
takeover bid from U.S. rival Stryker.
Although Stryker denied it was planning a bid, traders said
the return of takeover speculation would continue to support S&N
shares in particular and the broader market in general.
Credit Suisse said in a note that if such a transaction were
to materialise, the combined entity would significantly boost
the company's market share in major areas.
"Depending on the capital structure applied and the
prevailing debt financing costs, we think there would be
substantial additional non-operational, purely financial gearing
related benefits in such a transaction."
Engineering firm Weir Group gained 1 percent a day
after it abandoned efforts to acquire rival Metso.
The Finnish company had rejected Weir's second, improved
Bankers have said a failure to merge with Metso could make
Weir, already frequently the subject of takeover speculation, a
target for big players such as General Electric or
Honeywell that are keen to access the Glasgow-based
company's lucrative position in U.S. shale.
Merger news also spread to hedge-fund managers, with mid-cap
Man Group gain 5 percent after confirming it was in
talks to buy U.S. firm Numeric Holdings.
But some disappointment on the earnings front countered the
M&A froth in the market.
Kingfisher, Europe's biggest home improvement
retailer, fell 4.9 percent, the top decliner in the FTSE 100,
even though the group reported a 20 percent rise in first
quarter retail profit and said it would pay a 100 million pound
($167 million) special dividend.
"(Results were) marginally behind market and our
expectations because of the margin impact to UK profits and a
weaker than expected performance in France and China," Cantor
Fitzgerald analysts wrote in a note to clients.
Despite recent gains in the broader market, some analysts
advised caution and said equities had become vulnerable.
"If you look back at most stock market cycle highs, you'll
see a raft of IPO's and M&A activity typically signaling the top
of the market," Michael Jarman, head of equity strategy at H2O
"I'm not suggesting we are at the top right now, but I
actually believe investors should start to look at this recent
flurry of M&A activity and IPO listings as a warning signal."
(Editing by Catherine Evans and Toby Chopra)