City marches towards 5500 barrier despite Pru losses

The prospect of a 14bn rights issue to pay for its Asian expansion sent the insurer down 8 per cent on top of a 12 per cent plunge during Monday's session.

But the wider market rose 78.12 points to 5484.06 helped by rising commodity prices, hopes of a bail-out for debt-burdened Greece and brighter economic news in Asia.

Wall Street also advanced in early trading as sentiment was buoyed by further takeover activity although economic data was thin on the ground.

The pace of merger activity increased as US fertiliser maker CF Industries raised its hostile bid for Terra Industries, while Dow Chemical said it will sell one of its units that make latex, rubber and related plastics to private equity firm Bain Capital Partners.

"We are seeing good M&A activity and this is fuelling the market... there are still stocks out there with low prices and a lot of companies have a tonne of money eyeing these. The flow is good," said John Canally, investment strategist at LPL Financial in Boston.

The pound, meanwhile, remained below 1.50 against the dollar, having fallen under the benchmark for the first time in 10 months on Monday due to concerns about the political outlook.

Sterling was steady at 1.10 against the euro.

Among stocks, the Pru fell 421/2p to 4871/2p to hit a seven-month low after dropping 12 per cent in the previous session in the wake of the 23.5bn approach for the Asian division of stricken US insurer AIG.

Motor insurance group Admiral fell more than 3 per cent, or 42p to 1223p, despite news of a 7 per cent hike in annual profits.

However, investors are likely to have booked profits after strong gains for the group's shares in recent weeks.

Another insurance major – Aviva – was in positive territory ahead of its annual results later this week. Shares lifted 4p to stand at 3791/4p.

Banks also littered the risers' board as the sector's reporting season draws to a close, despite HSBC's lower than expected profits of 7.1 billion US dollars on Monday.

HSBC recovered some of its losses to stand 185/8p higher at 7005/8p, with Asian-facing group Standard Chartered up 641/2p to 1590p ahead of its results today. Royal Bank of Scotland rose 1p to 373/4p and Barclays was 95/8p dearer at 3213/4p. Lloyds Banking Group was 11/8p better at 513/8p.

Elsewhere, the strong start to the week for temporary power supply firm Aggreko continued after news that it had secured a major contract at this year's FIFA World Cup. Shares rose another 14p to 1048p.

Outside the top flight, Persimmon shares rose 233/4p to 4243/8p after the housebuilder posted a return to the black in 2009 and said sales were up 7 per cent since the start of the year.

It is also looking for an improvement in its operating margin after an upturn in house prices.

But sub-prime lender Provident Financial dropped more than 5 per cent in the FTSE 250, or 521/2p to 9191/2p, as it said profits dropped by more than 2 per cent in 2009 and gave a cautious outlook on customer appetite for borrowing in 2010.

The biggest Footsie risers were British Airways up 131/8p to 2251/2p, Icap ahead 151/4p to 343p, Fresnillo up 35p to 8171/2p and Standard Chartered.

The biggest Footsie fallers were Prudential, Admiral, Vedanta Resources off 87p to 2554p and Rolls-Royce which closed the day 8p lower at 554p.