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LONDON (Reuters) - Britain's leading share index ended higher on Monday after positive U.S. retail sales data and narrow gains for defensive shares more than offset another slide in banking shares on concerns about Spain.
Pharmaceuticals and utilities - sectors that are less exposed to swings in the economic cycle - drove the index higher, with GlaxoSmithKline (GSK.L) providing the biggest individual support, adding 5 points to the index.
"We saw some good numbers from the U.S. retail sales, which were helpful in adding to the risk appetite, so there was a little bit of a bounce for London stocks, but it wasn't hugely risk-sector led, mining stocks were pretty flat," said Angus Campbell, head of market analysis at Capital Spreads.
"The U.S. banks have had a very good set of results so far, so all in all it is conducive to a little bit of assistance to the upside but by no means a particularly convincing move."
The FTSE 100 index .FTSE closed up 0.3 percent.
The stronger-than-expected U.S. retail sales data bolstered optimism that the world's biggest economy is on a recovery track but Roelof-Jan vand den Akker, senior technical analyst at ING Commercial Banking, said the bounce in shares, after heavy falls last week, could prove short-lived.
"Looking at the past few weeks the FTSE made a high just below the 6,000 mark and started a decline from there on, I think this decline takes part of a larger top formation but on the short-term basis," he said.
"For the coming days to the next two weeks - we should expect a recovery in the development of a lower top to around the 50-day moving average line of around 5,860 or just below 6,000," he said.
"From there on we should see another decline in confirming this topping process."
Gains in defensive shares were checked slightly by the weaker performance of UK banking stocks. They were dragged down by a jump in Spanish debt yields, which rose above 6 percent, their highest level since November, on worries about Spain's ability to cut its deficit.
As a result of those jitters, UK financials proved the biggest drag on the broader index, with Royal Bank of Scotland (RBS.L) shedding more than 2 percent.
Lloyds Banking Group (LLOY.L) was the biggest loser, however, dropping more than 3 percent. In addition to the euro zone concerns, it was hit by reports the Co-op is close to abandoning a 1.5 billion pound bid for 632 Lloyds bank branches.
The market was awash with news of dealmaking, led by British power generator International Power IPR.L.
The British firm led gains for the day, rising 3.2 percent on its highest volume this month, after French utility GDF Suez GSZ.PA agreed to buy the 30 percent of International Power it does not already own for 6.8 billion pounds.
"We had thought that there would be an agreed offer at a level closer to our previous price target 'of 417 pence or fractionally higher', and the recommended offer is neatly within this ballpark," Investec Securities said in a note.
M&A issues also clipped 2.1 percent off International Airlines' IAG.L share price. Sir Richard Branson's Virgin Atlantic VA.UL airline is set to appeal against what it claims was Brussels' "lightning speed" approval last month of the contentious takeover of BMI British Midland by International Airlines Group, the parent company of British Airways, according to reports.
United Utilities (UU) (UU.L) rose 0.7 percent as Nomura repeated its "buy" rating on the utilities firm, which has underperformed its peer Severn Trent (SVT) SVT.L recently, as bid speculation swirls around the sector.
"SVT might be seen by some as a more likely candidate for a takeover as it is smaller than UU, but nothing we have seen in recent weeks changes our perception of relative probabilities of takeouts for each of the UK water stocks," the broker said.
Shares in Man Group (EMG.L) led losses, shedding 4.5 percent as JP Morgan cut its earnings estimates for the world's largest listed hedge fund firm and lowered its target price to 109 pence from 150 pence.
Editing by Susan Fenton