UK FTSE rises from two-month low on Diageo M&A talk

(Corrects headline, first paragraph to show reported bid interest still being considered)

* FTSE 100 up 0.1 pct

* Diageo (LSE: DGE.L - news) surges on reported possible bid interest

* Index recovers after biggest weekly drop this year

* Shire (Xetra: S7E.DE - news) dips after Sunday Times says considering Actelion bid

By Liisa Tuhkanen

LONDON, June 8 (Reuters) - Britain's main stock index edged up on Monday from two-month lows hit last week, helped by a rally in Diageo shares on reported takeover interest.

Diageo, the world's largest producer of spirits, jumped 7.4 percent to a six-week high on reports Brazilian billionaire Jorge Paulo Lemann and his partners in private equity firm 3G Capital (Other OTC: CGHC - news) are considering a bid for the company.

That put the drinks firm's shares on course for their biggest rally since November 2008.

"Diageo bid speculation from 3G Capital looks like it may have legs," said Mark Ward, head of execution trading at Sanlam Securities.

"Diageo (is) a solid company, and with the shares below £20, they are certainly attractive to a potential suitor."

Britain's FTSE 100 was up 5.04 points, or 0.1 percent, at 6,809.64 by 0759 GMT. Last week the index fell 2.6 percent, marking its biggest weekly drop so far this year, and is now 4.4 percent off of an all-time high hit in late April.

Among the top fallers, Shire dropped 2.3 percent after a Sunday Times report suggesting the pharmaceutical company was considering a 12 billion pound ($18 billion) takeover of Actelion Ltd (Xetra: 936767 - news) , Europe's biggest biotech firm.

Shire fell to a three-week low.

"(There are) rumours they might be looking at Actelion, which will be good news if it goes ahead. But Shire is a notorious rumour mill stock and everything should be taken with a pinch of salt with this one," Ward said. (Editing by Hugh Lawson)