Buoyant supermarket stocks lifted the London markets as a £5.5 billion private equity approach for Morrisons sparked the sector into life.
Morrisons rejected the move but saw its share soar by 34.6%, or 61.75p, to 240.2p at the close as investors predicted a bidding war could be on the horizon.
The approach by Clayton, Dubilier & Rice helped drive rivals Ocado and Sainsbury’s towards the top of the FTSE 100 amid a general feeling that the takeover move was driven by broadly low valuations in UK grocery.
London’s top flight closed 44.82 points higher, or 0.64%, at 7,062.29 on Monday.
Michael Hewson, chief market analyst at CMC Markets UK, said: “While the bid was rejected it has given the entire sector a boost in anticipation of a bidding war, not only for Morrison but also for the likes of Sainsbury which has outperformed this year due to Czech billionaire Daniel Kretinsky increasing his stake in the business, while Tesco has become much cheaper since it returned over £5 billion to shareholders in February.
“The renewed interest in this sector is likely to be painful for the short sellers, and short positions in Sainsbury’s in particular, however few will shed many tears about that, as this undervalued sector undergoes renewed scrutiny.”
Ocado was boosted by the acquisition chatter and also benefited from an upgrade from brokers at Morgan Stanley.
The online retail firm closed 76p higher at 1,957p to sit at a one-month high.
Elsewhere in Europe, the other major index also climbed throughout the session as global markets were boosted by increased investment activity in Japan.
The German Dax increased by 0.95% and the French Cac moved 0.51% higher.
Across the Atlantic, the Dow Jones moved marginally higher on the opening bell as an improvement in 10-year yields also helped steady trading sentiment.
Meanwhile, sterling edged higher ahead of Thursday’s key monetary policy committee meeting.
The pound was 0.09% higher versus the US dollar at 1.391 and increased by 0.08% against the euro to 1.168.
In company news, outsourcing firm Capita made significant gains after it said a series of strong contract wins means it is set to deliver revenue growth this year for the first time in six years.
The company also announced that it is selling off part of its high-performing specialist service unit, Axelos, in a deal valuing the business at £380 million.
Capita shares were up 3.44p at 41.08p at the end of trading.
Energy giant SSE was one of the day’s weaker performers after analysts at Jefferies downgraded the Scottish business.
It finished 10p lower at 1,516.5p after the experts said they expect an increase in SSE’s capital expenditure to stretch its balance sheet.
The price of oil continued its recent upward drift after Iranian elections prompted a halt to negotiations over the nuclear deal.
Brent crude increased by 1.03% to 74.27 dollars per barrel.
The biggest risers on the FTSE 100 were Ocado, up 76p at 1,957p, Sainsbury’s up 10p at 270.1p, Evraz, up 22p at 623.2p, and Intermediate Capital Group, up 71p at 2,186p.
The biggest fallers on the FTSE 100 were HSBC, down 2.85p at 426.55p, SSE, down 10p at 1,516.5p, Compass Group, down 9.5p at 1,564p, and GlaxoSmithKline, down 8.4p at 1,415p.