Vodafone hits 14-yr high as M&A talk rumbles on

* FTSE 100 up 0.6 pct, highest in 10 days

* UK public finances improve by more than expected

* Vodafone up 4.0 pct

* Dixons Carphone (LSE: DC.L - news) and Travis Perkins (LSE: TPK.L - news) also get upgrades

* Severn Trent (Other OTC: STRNY - news) dips after results

By Alistair Smout and Lionel Laurent

LONDON, May 22 (Reuters) - Britain's top share index hit its highest level in 10 days on Friday, driven by a jump in network operator Vodafone's shares, which hit a 14-year high on the back of potential merger activity.

Markets also got a lift after data showed Britain's public sector budget deficit narrowed more than expected in April, giving finance minister George Osborne a boost as he renews his push to fix the country's finances.

"(Osborne) will be very pleased with the good start to the fiscal year," said Howard Archer, an economist at IHS Global Insight.

Vodafone rose 4 percent, following upgrades from Citi and Deutsche Bank (Xetra: 514000 - news) .

Both brokers cited comments earlier in the week from Liberty Global chairman John Malone that Vodafone would be a "great fit" for the company.

Vodafone is up 11 percent since Wednesday. Goldman Sachs (NYSE: GS-PB - news) said that following an investor meeting on Thursday, it believed the company was considering a range of ways of options.

"There is significant industrial logic in fixed/mobile M&A on a market-by-market basis," analysts at Goldman said in a note, reiterating a "buy" rating on the stock.

"(Vodafone) is willing to consider both acquisitions and disposals where the financial rationale makes sense."

The FTSE 100 is now up 1.3 percent this week, set for its biggest weekly gain in more than a month.

It is only 1 percent away from an all time high hit in April, and has been in a tight 350 point trading range since late January.

Precious metals miners Anglo American (LSE: AAL.L - news) and Fresnillo both gained around 2 percent, boosted by a recovery in the gold price from recent lows.

Although set for its biggest weekly drop in a month, the price of gold rose 0.6 percent on Friday.

Electronics retailer Dixons Carphone rose 1.4 percent and housebuilder Travis Perkins was up 1.3 percent, benefiting from upgrades to target prices from Deutsche Bank and Jefferies respectively.

Among fallers, British water supplier Severn Trent fell 1.4 percent lower after results. Although it reported a 3.2 percent rise in underlying full-year profit, profit before tax fell by over 50 percent. (Reporting by Alistair Smout; Editing by Keith Weir)