UK Markets closed

Britain's FTSE hits a record as Melrose bid rejection lifts GKN

* FTSE up 0.2 pct at record close

* GKN (Frankfurt: 694194 - news) jumps 26 pct, Melrose (LSE: 136541.L - news) up 6 pct

* Carillion (Frankfurt: 924047 - news) in talks with creditor (Adds detail, quote and graphic; updates prices at close)

By Julien Ponthus and Kit Rees

LONDON, Jan 12 (Reuters) - Britain's top share index held onto record high levels on Friday, supported by a sharp rise in British engineering group GKN which said it had rejected an unsolicited offer from rival Melrose.

The FTSE 100 benchmark was up 0.2 percent at 7,778.64 points at its close, with GKN up 26.2 percent to 420 pence as it said no to Melrose's 405 pence per share offer and set out plans to split its business in half.

Shares (Berlin: DI6.BE - news) in Melrose were up by nearly six percent on the news.

"GKN's share price reaction after today's news ... has, in our view, gone only part of the way to unlock the value in those shares," analysts at Raymond James said in a note.

Among other shares to rise on Friday, packaging and paper company Mondi (Frankfurt: KYC.F - news) rose 1.2 percent after a rating upgrade from Investec (LSE: INVP.L - news) .

The FTSE gained despite sterling surging on the back of a report that Spain and the Netherlands were open to a softer Brexit.

"With (Other OTC: WWTH - news) the goldilocks global growth backdrop and the chance of a cliff-edge exit from the EU no longer the risk it was, the inverse correlation between the FTSE and sterling has clearly broken down in recent weeks," Neil Wilson, senior analyst at ETX Capital (Other OTC: CGHC - news) , said.

Meanwhile shares in housebuilder Bovis, which is undergoing a turnaround after seeing off two failed takeover bids last year, rose 1.4 percent after saying it was on track to deliver a significant increase in profit in 2018.

"The company points to solid industry fundamentals with strong demand for new homes supported by accommodative financing, government initiatives as well as the well documented shortage of national supply. Long may this continue", said Accendo Markets analyst Mike van Dulken.

Troubled building and services group Carillion plummeted 29 percent after a report that the company has put administrators on standby in case talks to rescue the debt-laden group fail.

Likewise British ministers held crisis talks to discuss the fate of Carillion.

"We suspect that given its mounting liabilities, recent press comment, growing customer worries and supply chain hesitancy that Carillion will be forced (by the banks) to accelerate its financial restructuring", Peel Hunt analyst Andrew Nussey said.

While Christmas updates weighed on Tesco (Frankfurt: 852647 - news) and Marks and Spencer during the previous session, they both recovered slightly.

(Reporting by Julien Ponthus and Kit Rees, Editing by William Maclean)