LONDON The FTSE 100 edged higher on Monday in a quiet half session before the Christmas break, with some strength seen from banks and commodity stocks, though uncertainty over U.S. budget talks could limit near-term gains.
The FTSE 100 closed up 14.19 points, or 0.2 percent, at 5,954.18, within sight of a nine-month high of 5,977.82 hit on Wednesday. Trading volumes were very thin at just 21 percent of the 90-day daily average.
Banks, miners and oil stocks were behind nearly all of the FTSE 100's points gain as investors positioned ahead of a two-day holiday.
But the mood remained cautious as talks between U.S. Democrats and Republicans to head off the "fiscal cliff" of automatic tax hikes and spending cuts stalled, with President Barack Obama and House Speaker John Boehner out of Washington for the Christmas break.
"Until they actually are able to produce something that removes some of the uncertainty... I think (markets) will be quite restrained from moving sustainably higher and, if anything, they could be prone to some profit-taking," said Mike Lenhoff, chief strategist at Brewin Dolphin.
On an otherwise slow day in terms of corporate news, merger and acquisition activity provided the market with some interest, in a trend which fund managers see picking up in the new year.
ITV, Britain's largest free-to-air commercial broadcaster and home to period drama "Downton Abbey", rose 0.6 percent after saying it will buy a 61.5 percent stake in U.S.-based Gurney Productions, which makes reality programmes.
Westhouse Securities lifted its target price for ITV to 125 pence from 115 pence, and repeated its "buy" recommendation on the stock, to reflect positive momentum within the group.
Westhouse said it was not planning to change its forecasts in light of the deal but sees scope for upgrades in 2013.
Trading volume in ITV was very thin at just 17 percent of the 90-day daily average.
Among medium market capitalisation stocks, software group Micro Focus International edged up 0.3 percent after announcing its acquisition of assets from U.S.-listed Progress Software for $15 million.
"Sound industrial logic, a neat price, earnings enhancing and the opportunity to get some mojo (i.e. inorganic growth) into that insipid revenue line - what's not to like?," Panmure Gordon said in a note.
The broker raised its 2014 earnings per share estimates for Micro Focus by 3.8 percent and hiked its target price for the stock to 647 pence from 633 pence.
"The funds I manage have benefited throughout 2011 and 2012 from buyouts, and I expect this activity to continue, and perhaps accelerate, into 2013," said Alex Wright, manager of Fidelity UK Smaller Companies Fund and Fidelity Special Values - which have 78.76 million pounds ($127.45 million) 348.54 million pounds under management respectively.
"I think the conditions are perfect for M&A activity, with record low interest rates, strong corporate balance sheets in large caps, bargain valuations in small caps, and the economic environment rewarding those organisations that can operate at maximum scale and efficiency," he said in a note.
On the downside, BT Group shed 1.1 percent as the stock traded without entitlement to its latest dividend payout. ($1 = 0.6180 British pounds)
(Reporting by Tricia Wright; Editing by Hugh Lawson)