By Tricia Wright
LONDON (Reuters) - Britain's top equity index inched up on Monday, led by gains in broadcaster ITV on talk of a takeover from Virgin Media owner Liberty Global.
ITV's shares hit their highest levels since January 2001, up 3.6 percent. The speculation was fuelled by a report in The Telegraph saying Liberty was canvassing support from major ITV shareholders following its acquisition of a 6.4 percent stake. ITV declined to comment on the rumours.
Analysts at Liberum noted a bid would have to take into account an anticipated rule change involving retransmission fees. Currently regulations stop ITV from charging these fees - potentially pure profits - for its biggest channel ITV1.
Meanwhile, BAE Systems advanced 2.4 percent, with traders citing the effect of a BofA Merrill Lynch upgrade of the defence company to "buy" from "underperform".
The FTSE 100 index closed up by 5.56 points, or 0.1 percent, at 6,825.31. Trading volumes were only at 66 percent of their 90-day daily average, with New York closed for a public holiday.
Weakness at HSBC and Tesco, after key shareholders sold stakes in the two companies, limited the FTSE 100's gains.
HSBC slipped 0.7 percent after one of Britain's best-known fund managers, Neil Woodford, said he had sold his fund's stake in the banking group. He cited concern over the effect on the bank of several industry-wide investigations.
"In particular, I am worried that the ongoing investigation into the historic manipulation of Libor and foreign exchange markets could expose HSBC to significant financial penalties," Woodford said in a blog posting on his fund's website.
Woodford - who left Invesco Perpetual earlier this year to set up his own company - said a substantial fine could hamper HSBC's ability to increase its dividend. CF Woodford Equity Income Fund had 2.68 percent of its assets in HSBC shares at the end of July, according to the fund's factsheet.
Tesco shed 1.9 percent following a 6.6 percent drop on Friday when it cut its dividend after its second profit warning in two months.
Tesco took another hit on Monday after Harris Associates, one of its largest shareholders, sold around two-thirds of its stake in the company. The decline in its share price also pulled down rivals such as J Sainsbury and Wm Morrison.
"There is negative pressure building up on Tesco's shares. The dividend is going to become an issue and there is pressure on the management to review its strategy, because it's clearly not working," Beaufort Securities sales trader Basil Petrides said.
Although the FTSE and other European stock markets have been propped up in recent months by expectations of new economic stimulus measures from the European Central Bank, some traders were wary about betting on big near-term gains.
The FTSE 100 reached a peak of 6,894.88 points in mid-May, its highest in more than 14 years. But it has not yet passed the 6,900 point mark, considered a major hurdle before the FTSE can challenge record highs around 7,000 points.
"I would look to sell into rallies at the moment," said Berkeley Futures' associate director Richard Griffiths.
(Additional reporting by Sudip Kar-Gupta; Editing by Ruth Pitchford)