Miners lead FTSE to 1-week high, Meggitt surges

* FTSE 100 index rises 1.1 percent

* Miners bounce after Rio update, China data

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

By Atul Prakash

LONDON, July 16 (Reuters) - Britain's top share index climbed to a one-week high on Wednesday, with engineering firm Meggitt surging on bid speculation and miners rallying after a strong update from Rio Tinto (Xetra: 855018 - news) and encouraging growth data from China.

The FTSE 350 mining index jumped 2.5 percent to a 4-1/2-month high, making it the sector that gained the most in the FTSE 350 index, which rose 1.1 percent. The FTSE 100 was also up 1.1 percent at 6,782.12 points by 1413 GMT.

Miners got support from data showing growth in China, the world's biggest metals consumer, beat expectations and after miner Rio Tinto, up 2.9 percent, reported a sharp rise in iron ore output in Australia.

"We are overweight on the sector as miners are attractively valued and offer a very good dividend yield," James Butterfill, global equity strategist at Coutts, said.

"And it's a contrarian call because there has been a negative sentiment following some disappointing numbers from China in the past and concerns over the capital expenditure programmes of mining companies. We are now witnessing a greater capital discipline and more focus on shareholders."

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 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." (Additional reporting by Francesco Canepa; Editing by Raissa Kasolowsky)