By Sudip Kar-Gupta
LONDON (Reuters) - Britain's FTSE 100 index rebounded on Thursday as gains for shares in Burberry (L:BRBY), driven by speculation of a possible takeover bid, fanned hopes of a broad increase in acquisition activity.
The blue-chip index (FTSE) was up 0.9 percent at 6,996.82 points at 1118 GMT, closer to a record high of 7,065.08 set in March.
With only a few weeks to go before the most unpredictable British election in a generation, UK stock markets have shown little sign of political jitters.
A pick-up in mergers and acquisitions such as Royal Dutch Shell's (L:RDSa) $70 billion proposed takeover of BG (L:BG) has leant support.
Burberry shares were up 3.8 percent, with traders citing market speculation of bid interest from U.S. private equity. Burberry declined to comment.
"I have been buying up Burberry shares but I don't think I'll go back in for more ahead of Burberry's (results) numbers later this month," Securequity sales trader Jawaid Afsar said.
The index was little changed after the Bank of England kept interest rates at their record low as policymakers wait to see whether a tumble in inflation is short-lived or turns into a bigger threat for the British economy.
Among standout losers were mining stocks. Anglo American (L:AAL) shares were down 1 percent after Credit Suisse (SIX:CSGN) cut its rating on the company to "neutral" from "outperform", while Investec downgraded BHP Billiton (L:BLT) to "sell" from "hold".
Beyond equity markets, investors have shifted bets ahead of the coming election.
Bets on how volatile the British pound
Opinion polls put the right-wing Conservatives neck-and-neck with the opposition left-wing Labour party, while the Scottish National Party could emerge as the third-biggest party.
Adding to the uncertainty, the Conservatives have promised a referendum on Britain's membership of the European Union by the end of 2017, if they win.
Data released at 0830 GMT showing the trade gap widened in February had no effect on the market.
Some traders said the backdrop of more takeover activity would cushion the FTSE from any major hits caused by the May 7 vote. The FTSE remains up 6 percent so far in 2015.
"The M&A activity should keep the FTSE steady. The momentum is still to the upside," Thames Capital Markets strategist Nav Banwait said.