FTSE up as merger talks boost BA

By Michael Taylor

LONDON (Reuters) - The bluechip index ended higher to snap three consecutive sessions of declines on Tuesday, as merger activity boosted British Airways (BAY.L) while banks and oil shares both weighed.

The FTSE 100 .FTSE index was up 6.6 points, or 0.1 percent, at 5,319.2, after falling to 5,261.4 earlier in the session. The benchmark index is down 17.6 percent for the year to date.

On the upside, British Airways led the way, gaining 6 percent after it said it was in merger talks with Spain's Iberia (IBLA.MC).

A tie-up would create the world's third-biggest airline, which could form the basis of a three-way transatlantic tie-up and trigger a fresh wave of industry deals.

Oil shares were the biggest drag on the index, as U.S. crude prices fell to $121 a barrel.

BG Group (BG.L) and Shell (RDSa.L) shed 1.4-3.1 percent. BP (BP.L) also reversed earlier gains to dip 2.5 percent despite reporting better-than-forecast quarterly profits. Banks also featured on the downside after Merrill Lynch's MER.N $5.7 billion (2.88 billion pounds) third-quarter writedowns raised fresh concerns over the embattled sector.

Barclays (BARC.L), Royal Bank of Scotland (RBS.L), HBOS and Standard Chartered (STAN.L) were down between 1.7 and 5.1 percent.

Adding to the banks' gloom, Merrill Lynch said in a research report to clients that it was raising its additional possible writedown estimate for European banks to $58 billion from $22 billion.