Deal fever fuels sharp rise in FTSE 100

(Close): The FTSE 100 posted its biggest weekly gain since 2011 on Friday as telecoms shares rose on the prospect of consolidation in the sector.

Shares jumped after it emerged that Three owner Hutchison Whampoa was in talks over a £10bn deal to buy rival O2, adding to recent consolidation moves after BT entered exclusive talks on a £12.5bn takeover of EE.

The activity helped the blue-chip index add 36.2 points to 6,832.8.

That was the seventh consecutive session of gains as confidence returned to the market following the stimulus moves in Europe on Thursday.

The index rose 283 points this week and was now about 100 points short of its record high of 6,930.02 set in December 1999.

BT shares were 9.9p higher at 431.1p, while Vodafone rose 1.2p to 239.9p on expectations that it may need to strike a deal of its own.

The €1.1 trillion of asset purchases planned by the European Central Bank weakened the euro, sending the pound up two cents to a new seven-year high against the single currency, at 1.34, as attention turned to Sunday's election in Greece.

Analysts fear that success for the left-wing Syriza party will result in the country defaulting on its debt and eventually leaving the euro.

Sterling dipped below $1.50 at one stage against the US dollar due to the UK's close trading links to the eurozone.

"We think the pound remains a relatively attractive vehicle for expressing a bearish euro view, with even steady Bank of England policy creating a better backdrop for the pound relative to the euro," BNP Paribas said in a note.

Oil stocks and mining stocks dominated the fallers' board, even though the death of Saudi Arabia's King Abdullah have helped the oil price to rise.

Brent crude was trading at close to $50 a barrel amid added uncertainty about Saudi oil policy at a time when prices have fallen by more than half since the summer.

BG Group dropped 19.2p to 891.7p, but BP was 4p higher at 432.4p and Shell dipped 24p to £22.74 ahead of its annual results next week.

In corporate updates, shares in Premier Foods surged by 9% after it finished a challenging year with strong growth over the Christmas period.

Elsewhere, shares in discount retailer B&M were 6p higher at 308p after it reported like-for-like sales growth of 4.5% for the 13 weeks to December 27.

The biggest risers in the FTSE 100 were Associated British Foods up 95p at £30.80 and Reckitt Benckiser, 160p higher at £55.60, while Glencore shed 15.4p to 249.4p and Antofagasta was down 34.5p at 684.5p.