London stocks boosted as Kraft ties up Cadbury deal

The UK confectioner was one of the FTSE 100 Index's strongest risers – up almost 4 per cent – after US food giant Kraft finally succeeded in its bid for the firm.

The wider market was 18.75 points higher at 5513.14 despite results from Wall Street bank

Citigroup showing a 7.6 billion US dollar (4.7bn) fourth-quarter loss.

Investors also overcame inflation worries after official figures revealed a much higher than expected increase in the cost of living last month.

Sterling leapt on the data, reaching a high of 1.645 US dollars before slipping back to 1.635 later in the session. The pound also hit a new four-month high against the euro, with one euro worth 87p at one point.

US markets bounced upwards after being closed on Monday for a public holiday.

The Dow Jones Industrial Average shook off fears from the Citi results, rising 0.7 per cent by the close of play in London.

US stocks also rose as investors bet that a Senate race in Massachusetts could put President Obama's reform plans, especially those on healthcare, in jeopardy.

The S&P Healthcare Index climbed 2.1 per cent, led by Humana, which jumped 5.5 per cent to $51.17, as voters headed to the polls to determine who will replace Edward Kennedy in a close race.

Pharmaceutical companies' shares also advanced, with Merck & Co up 3 per cent at $40.64, and Pfizer up 2.2 per cent at $19.91. The pair represented the Dow's top two percentage gainers.

Banking stocks were in focus on the FTSE following the US bank's report of another 8.2 billion dollar (5bn) bad debt charge for the quarter. Lloyds Banking Group led the fallers – down 11/2p to 571/8p – while Barclays also slid after Credit Suisse downgraded its price target from 400p to 350p and said it remained cautious on UK banks. Barclays fell 55/8p to 3121/8p.

The retail sector also suffered from a broker downgrade after HSBC revised its position on a trio of retailers, including Argos parent Home Retail Group, to neutral from overweight.

Home Retail was down 31/2p to 2641/4p while Marks & Spencer lost 43/8p to 3561/4p. Outside the top flight, Currys owner DSG was 7/8p lower at 357/8p.

Burberry proved to be the exception in the sector as its shares rose to the top of the blue-chip risers' board. The fashion chain impressed analysts with a better-than expected third quarter update. Shares were up 491/2p to 649p, a gain of more than 8 per cent.

It was followed by Cadbury – up 29p to 8361/2p – after Kraft unveiled the biggest deal in the sweet sector since Nestle bought Rowntree in 1988. Cadbury recommended its 11.9bn takeover offer and the proposed price rivals the amount paid by EDF for British Energy last year.

Severn Trent also rose 3 per cent despite revealing it planned a one-off dividend cut of 10 per cent in order to meet regulator Ofwat's recent ruling that it reduce households bills by 4 per cent by 2015. The dividend cut was less severe than many analysts had feared and shares rose 34p to 1123p.

Carphone Warehouse shares were higher in the FTSE 250 Index, up 43/8p to 2013/8p, after its sponsorship of the X Factor helped it add 36,000 broadband customers in its third quarter.

The biggest Footsie risers were Burberry, Cadbury, Rexam up 10p to 3031/4p, and Severn Trent.

The biggest fallers were Lloyds Banking Group and SABMiller off 41p to 1779p.