FTSE reaches one-week high as mining companies gain, Meggitt surges

* FTSE 100 index rises 0.9 percent

* Meggitt (Other OTC: MEGGF - news) up 8.4 pct on report of possible bid

* Miners bounce after Rio update, China data

By Atul Prakash and Francesco Canepa

LONDON, July 16 (Reuters) - Britain's top share index hit a one-week high on Wednesday, as engineering firm Meggitt gained on bid speculation and mining companies rallied after a strong update from Rio Tinto (Xetra: 855018 - news) and encouraging growth data from China.

The FTSE 350 mining index surged 1.7 percent, making it the sector that gained the most in the FTSE 350 , which was up 1 percent. The blue-chip FTSE 100 index rose 0.9 percent to 6,772.85 points by 1021 GMT.

Growth in China, the world's biggest metals consumer, beat expectations and global miner Rio Tinto, up 2.2 percent, reported a sharp rise in iron ore output in Australia. Both helped push mining shares higher.

"An upside surprise on Chinese GDP, alongside positive corporate newsflow, is helping the mining sector to outperform today," Robert Parkes, equity strategy director at HSBC, said. "This sector remains heavily out of favour amongst investors and so a little bit of positive news can go a long way."

The market was also helped by an 8.4 percent surge in Meggitt shares to 531.5 pence. Citing dealers, the Daily Mail wrote that the U.S. company United Technologies Corp (Xetra: 852759 - news) may be preparing a 625 pence cash offer for the British engineering firm, which is a key player in the aerospace sector.

Meggitt declined to comment. A spokeswoman for United Technologies could not be reached for comment.

The prospect of a bid led speculative sellers to close their short positions, or bets against the stock, traders said. The shares had fallen nearly 9 percent since late June.

"I don't think there will be a huge amount of people going long on the back of this, but people who were short would be scrambling to cover," said Mark Ward, head of execution trading at Sanlam Securities UK.

Short sellers borrow a stock and sell it, expecting to buy it back at a lower price before returning it to the lender. Over the past month, they have targeted Meggitt - around 5.7 percent of its shares available to be borrowed were out on loan on June 14, up from 0.4 percent on June 10, Markit (Stuttgart: A1139A - news) data showed.

Meggitt was the top riser on the FTSE 100 index, which climbed to its highest since early July and recouped most of its losses from Tuesday, when U.S. Federal Reserve Chair Janet Yellen voiced concern over valuations.

On the economic front, the market showed little reaction to a report that Britain's unemployment rate fell to its lowest level since late 2008 in the three months to May, but pay grew less than expected. Employment reports usually are closely watched for clues about the timing of a rate hike. ID:nL9N0MN00B]

"The figures do not suggest any immediate change in MPC thinking, as the rise in average wages was somewhat subdued, admittedly influenced by unfavourable base effects," Nick Beecroft, senior market analyst at Saxo Capital Markets, said, referring to the Bank of England's Monetary Policy Committee. "I continue to expect a rate rise in Q4 2014."