Sainsbury's bid speculation lifts FTSE above 5000 mark

Rumours that the Qatar Investment Authority – which already owns 26 per cent – was hatching plans for another tilt at the grocer helped shares surge up the risers' board with a 5 per cent, or 161/8p gain to 3441/4p.

The wider market added to Tuesday's near 3 per cent advance, closing 49.82 points ahead at 5014.82 as the top flight clawed back a 1 per cent fall in a tricky start to the session.

The turnaround came after gains on Wall Street as bank State Street reported stronger than expected results and raised hopes for the US reporting season, also helping to soothe nerves after a surprise fall in German manufacturing output.

The pound was virtually flat against the dollar, trading just below 1.52, and steady at 1.20 against the euro.

But the euro fell from seven-week highs against the dollar on concerns about the growth outlook for the global economy and plans to test the financial health of European banks.

European regulators haggled over what details to reveal about stress tests of about 100 banks in a dispute that could undermine confidence in the health checks on the region's lenders.

The euro eased after reaching $1.2663 on trading platform EBS on Tuesday, its highest level in about seven weeks. It fell 0.2 per cent to $1.2592 after worse-than-expected data showed factory orders in Germany, the euro zone's largest economy, fell for the first time this year in May.

Banking giant Barclays led the risers' board, adding 17p to close at 2915/8p as an analyst said that a break-up of the business could boost the firm's share price by almost 40 per cent.

Beleaguered BP – itself the subject of recent takeover speculation following the Gulf of Mexico spill – continued its recent recovery with a gain of 161/2p to 362p, amid reports that chief executive Tony Hayward was looking to raise funds from an Abu Dhabi sovereign wealth fund. Shares have now risen more than 20 per cent since it hit a 14-year low on June 25.

Marks & Spencer was the leading Footsie faller as a better-than-expected first quarter performance failed to lift shares amid nerves over the outlook.

The group, which had seen decent gains in the days leading up to the update, lost 91/4p to 3433/8p after a 3.6 per cent rise in like-for-like sales.

As well as the sell-off for M&S, other retailers were impacted by a cautious review of the general retail sector by brokers at Royal Bank of Scotland.

Next fell 2p to 2075p, while Burberry – which also turned ex-dividend yesterday, meaning shareholders are not entitled to the latest payout – dropped 101/2p to 7581/2p.

In the FTSE 250 many oil and gas explorers rose after a note from UBS brokers talking up key drilling prospects in the second half, as well as a recent revival in merger and acquisitions activity in the sector.

The leading second tier performer was JKX Oil & Gas, which cheered 7 per cent, or 171/4p to close at 2621/4p.

Elsewhere, shares in Clinton Cards tumbled 7 per cent after the greetings card firm revised sales and profits expectations in the wake of disappointing trading since May.

The company, which had raised its guidance in March, fell 23/4p to 36p.

The biggest Footsie risers were Barclays, Sainsbury's, and Royal Bank of Scotland.

The biggest Footsie fallers were M&S, Smith & Nephew down 9p to 578p, Burberry and Whitbread which closed the session 18p worse off at 1370p.