British Airways helped London benchmarks cling to their best levels in at least six years, helped by Merrill Lynch adding the airline to its "buy" list. The US broker told clients that shares are discounting any potential value from BA's plans to unite operations in Heathrow Terminal Five, due to open in March next year. Raising earnings forecasts, Merrill's team predicted the switch would help BA grow connecting traffic, cut costs, increase ticket pricing and improve its bums-to-seats ratio.

Dealers also noted that BA had arranged an investor day for next month, when management could draw a line under recent disruptions with strong forward guidance. Even before Terminal Five effects are known, BA's earnings will show the benefit of lower pension and fuel costs, as well as from two Easter breaks and an extra day in February for its 2008 fiscal year. Persistent speculation about stake building also played a part in the gain, despite analysts highlighting that restrictions on foreign ownership would make any bid for BA unlikely.

BHP Billiton led the natural resources stocks higher as news of a $10 billion (£5 billion) share buyback, the industry’s single biggest return of capital, overshadowed interim results towards the low end of City forecasts.

Scottish Power tracked a gain for Iberdrola shares, the Spanish utility having agreed to buy its UK peer last November in a deal partially funded by paper. Various rumours were in circulation to explain Iberdrola’s gain, with France’s EDF mooted as a bidder and ACS, its biggest shareholder, said to be looking at lifting its stake.

Man Group missed out on the day's firm trend after Dresdner Kleinwort cut the hedge fund manager off its "buy" list on valuation grounds.

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