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FTSE rebounds on deal-making prospects

People pass electronic information boards at the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth

By Liisa Tuhkanen and Lionel Laurent

LONDON (Reuters) - FTSE 100 snapped a five-day losing streak on Tuesday, with hopes for corporate deal-making and robust corporate results offsetting market turmoil in China and worries about emerging-market growth.

RSA Insurance soared 18 percent on news Zurich Insurance was considering a takeover bid. Hikma Pharmaceuticals was also up, more than 7 percent, after announcing a deal to buy Boehringer Ingelheim's U.S. generic drugs business for about $2.65 billion in cash and stock.

The UK market's skew towards energy and mining shares - vulnerable to a slowdown in China demand - has led it to underperform broader Europe in recent weeks. On Tuesday, that underperformance continued with the blue-chip UK FTSE 100 rebounding less strongly than peers.

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The FTSE 100 index closed up 0.8 percent at 6,555.28 points, while the pan-European FTSEurofirst 300 index rose 1 percent. The FTSE hit a record 7,122.74 points in April but is now more than 8 percent below that high.

Investment bank Credit Suisse warned on Tuesday it was time to downgrade UK shares, with interest rates set to rise and commodity prices set to weigh on the FTSE. A rising currency was also a negative for company earnings power, it said.

"The UK market (historically) ends up marginally underperforming global markets when UK interest rates initially rise," Credit Suisse strategists wrote in a note to clients, adding that UK market valuations were also above their long-term average.

British economic growth got back on track in the second quarter of 2015, data showed. Economists expect a minority of policymakers to vote to raise interest rates as early as next week's Bank of England meeting, amid signs of strengthening wage growth and an economy operating at close to full capacity.

Among other top gainers, GKN added more than 7 percent. The British engineering company said it had agreed to acquire Netherlands-based Fokker Technologies for 706 million euros ($781 million), including debt, to strengthen its position as a supplier to aeroplane manufacturers.

On the downside, Royal Mail fell more than 3 percent after Britain's postal regulator, Ofcom, said Royal Mail had breached competition law by proposing wholesale prices that were designed to be more expensive for any company looking to run a rival mail delivery service.

(Reporting by Liisa Tuhkanen, editing by Larry King)