Rio Tinto reversed recent falls, rising 6 per cent to £47.47 on talk in Australia overnight that BHP Billiton was about to raise its three-for-one share offer to around 3.5 shares plus some cash.

But miners rose across the board thanks to recovering copper prices, with Xstrata up 4.7 per cent to £32.41 and Kazakhmys up 4.3 per cent to £11.80, helped by an upgrade to overweight from HSBC.

This helped keep the FTSE 100 up 65.7 to 5,968.1 by 10.40am.

The London Stock Exchange rebounded 7 per cent to £16.98 from recent falls, helped by Gordon Brown, who at the opening of the LSE's new Beijing office said he would urge the Chinese Government to lift restrictions on companies looking to float in London.

AstraZeneca jumped 3.4 per cent to £23.78 thanks to a positive note from Morgan Stanley, which said its cholesterol drug Crestor could benefit from controversy surrounding the rival drug Vytorin, produced by Merck and Schering-Plough. It emerged last night that six law firms have filed an action against the two drug groups, saying that they made misrepresentations and withheld information in submissions to the US regulators. The news sent shares in Merck and Schering-Plough falling.

Rumours of a management buyout of Rentokil Initial at 240p to 255p helped it to rally again, up 2.5 per cent to 109.3p.

Fund managers were under pressure following a profit warning from John Duffield's New Star Asset Management. New Star dived 29 per cent to 105p, Schroders lost 4.4 per cent to £10.32, Ashmore fell 6 per cent to 238¼p and Hargreaves Lansdown lost 4.5 per cent to 142p.

ICAP, the inter-dealer broker, dropped 5 per cent to 618p on worries that a US recession would hit trading volumes.

The banking sector was hit by massive losses unveiled by Merrill Lynch in the US. Barclays dropped 1.4 per cent to 459½p and Royal Bank of Scotland fell 2p to 384p.

JP Morgan did not help by reiterating its "underweight" rating for the sector, saying prices had still not fallen far enough. It cut earnings by 9 per cent for 2008 and 12 per cent for 2009.

Insurers were also hit after a report that Aegon's Scottish Equitable insurance arm has frozen withdrawals from its property fund. Prudential fell 2.6 per cent to 617p, Friends Provident lost 2.4 per cent to 151.3p and Standard Life lost 1.8 per cent to 222p. Aviva, the Norwich Union owner, was down 1.3 per cent at 596½p.

Northern Rock was the top mid-cap performer, up 11 per cent at 70p on a report that Sir Richard Branson was considering raising his bid for the mortgage bank.

Aveva, the maker of computer-aided design software for utilities and shipping companies, rose 11 per cent to 903½p after it said profits for the year would be ahead of forecasts.

SCi Entertainment was the biggest small-cap gainer, up 35 per cent to 64¾p, after it ousted Jane Cavanagh, the founding chief executive, Bill Ennis, managing director, and Rob Murphy, publishing director.

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