FTSE bounces into February

A general view of the entrance atrium at the London Stock Exchange is seen in central London February 20, 2007.

LONDON (Reuters) - The FTSE 100 .FTSE bounced into February on Friday, surging 2.5 percent as merger activity heated up the mining sector and after the leading share index put to bed its worst ever January.

The FTSE 100 ended up 149.4 points at 6,029.2. The index lost about 9 percent in January, a month when growing fears of a U.S. recession repeatedly sparked stock market ructions around the globe. But financial markets worldwide remain jittery as investors fret over a cloudy outlook for the world's biggest economy.

"It may be a new trading month, but there's certainly no suggestion that the rampant volatility we saw in January is behind us," said Jimmy Yates, a trader at CMC Markets.

Rio Tinto (RIO.L) shares surged 13 percent after aluminium producer Alcoa Inc (AA.N) and China's Chinalco teamed up to acquire a 12 percent stake in the mining giant for $14 billion, threatening miner BHP Billiton's (BLT.L) efforts to win Rio.

"We've had an amazing day for corporate activity ... That will get the bulls running," said Roger Cursley, UK strategist at Investec.

Closely tailing Rio's top-spot on the gainers list, BHP leapt 9.8 percent. Kazakhmys (KAZ.L) rose 3.9 percent, Anglo American (AAL.L) added 5.8 percent and Antofagasta (ANTO.L) climbed 7.3 percent.

European shares pared gains on Friday after U.S. nonfarm payrolls fell by 17,000 in January, confounding consensus expectations of an increase of 80,000. But data showing U.S. factory activity in January rose more than expected, easing worries about the jobs data.

"Volatility is high ... It's very, very hard for people to keep up," Cursley added. "The chances are we may end February a bit lower than here, but not dramatically so."

U.S. stocks edged lower in choppy trading as investors worried about the outlook for bond insurers and the economy, overshadowing news of Microsoft's (MSFT.O) $44.6 billion (22.4 billion pound) offer to buy Yahoo (YHOO.O).

The market has discounted a quarter-point interest rate cut from the Bank of England next week, and is pricing in a one-in-three chance of a half percentage point reduction

BANKS JOIN THE PARTY

Banks joined in the rally, with HSBC (HSBA.L) up nearly 3 percent, Alliance & Leicester ALLL.L rising more than 3 percent and Standard Chartered up more than 2 percent.

Topping the losers, British Airways BAY.L fell 4.2 percent on worries over its longhaul premium travel business in the light of weakness in financial markets, despite the airline's statement that traffic remains strong.

Shares in British Land Company (BLND.L) slid more than 2 percent as Credit Suisse cut its rating for the property investment company to "neutral" from "outperform" and lowered its price target to 11.73 pounds from 16.03 pounds. Real estate investment trust Segro (SGRO.L) added 3 percent as Credit Suisse raised its rating to "outperform".

A note from Credit Suisse raising the UK real estate sector to "overweight" from "market weight", as well as falling interest rates, bolstered housebuilders Taylor Wimpey (TW.L), which jumped 7.6, percent and Persimmon (PSN.L), up 2.7 percent.

(Additional reporting by Chloe Fussell, Michael Taylor; Editing by Paul Bolding)