THE appearance of a couple of domestic takeover bids, a good early showing by global bonds and a reassuring performance by Wall Street saw London equities regain some of the composure lost over the past couple of weeks.
The FT-SE 100 index, having launched an ultimately unsuccessful attempt to clamber back over 4,000, nevertheless ended the session 21.4 points higher at 3,993.8, the best of the day.
And the much healthier climate in the leaders quickly spread to the rest of the market, where the FT-SE 250 index settled 12.9 ahead at 4,371.2 and the FT-SE SmallCap 3.6 at 2,132.0.
There was an element of unease in gilts which came under pressure late in the session, ahead of last night's fisheries policy vote in the House of Commons, which traders worried could be close.
Gilts were additionally unsettled by economic news from the US, notably a stronger-than-expected industrial production figure for November.
Overall, dealers said they had been surprised by the British market's resilience, but pointed to the growing feeling that further takeover action in London might not be too far away.
Although much of the early talk in London was about the multi-billion dollar merger between Boeing and McDonnell Douglas, there was no shortage of bid speculation.
News of the merger of Lloyd Thompson and JIB, two of the second-tier insurance brokers, was immediately followed by a burst of intense activity in Willis Corroon and Sedgwick, Britain's two biggest.
The latter two stocks were hammered last week in the wake of the merger of Aon Cotporation and Alexander and Alexander of the US, which was seen as removing two potential predators. But the feeling is that more moves could be imminent in the insurance sector; Commercial Union and Guardian Royal Exchange were both bid aggressively higher late in the day.
Marketmakers said they expected the big institutions to try to keep Footsie within sight of 4,000 for year end. One said: "4,000 is seen as pretty much good news for everybody; but I wouldn't ignore the possibility of more big moves before they bring the curtain down on 1996."
Lehman Brothers, the US broker, has adopted a more bullish stance towards British equities, moving its recommended weighting from neutral to over-weight within a pan-European equity portfolio.
Strategists at Lehman said: "UK equities look cheaply valued relative to gilts and this stands in marked contrast to the position elsewhere in Europe where the bulk of equity markets look expensive compared with bonds."
Lehman expects a 12-month total return of 21 per cent from Britain, expressed in dollars, compared with 9 per cent for Europe excluding Britain; this translates into a year-end Footsie target of 4,600.
