UPDATE 5-FTSE 100 clings to 3,800 as gains fade.

(From FT Investor (Stories))

LONDON (FT.com) - London's blue-chip index was higher on Tuesday, buoyed by merger talk and upbeat sales figures from high street retailer Marks and Spencer, but had pulled back from the day's best levels in lunchtime trade.

The rise started in financial stocks but telecoms took up the reins as the leading sector after banking gains evaporated in late morning trade. Gainers outnumbered decliners by two-to-one on the FTSE 100, although volumes were unremarkable at 800m shares in FTSE stocks by 1100 GMT.

The FTSE 100 traded 0.5 per cent higher at 3,799 and the FTSE Techmark gained 1.4 per cent to trade at 618.8. See European markets report

The bounce was a welcome respite from recent selling pressure, but analysts remained downbeat about the market's prospects.

"There's a plethora of reasons to remain very much on the defensive in these markets, whether we look at P/E ratios still above historical norms, earnings downgrades, no capital expenditure pick-up, (or) global economic weaknesses," said Steve Hatton, strategist with spread-betting firm Deal4Free.com.

Based on pre-market futures Wall Street was expected to open higher. The Dow Jones Industrial Average was seen 69 points higher and the Nasdaq Composite was expected to rise 6.5 points.