Carphone Warehouse was one of the top gainers as Morgan Stanley upgraded to "buy" and amid a rumour that Vodafone would buy its broadband and telephone business while Best Buy would pick up the mobile phone shops.

However, Carphone uses its high street shops to sell and support its broadband customers, so separation would prove difficult.

Geoff Ruddell of Morgan Stanley said: "CPW’s retail business derives most of its revenues from offering customers free upgrades. The recession will have to be very bad for consumers not to want free stuff. BT customers can save £200 a year by switching to TalkTalk. We think that is going to look pretty attractive to many UK households in the coming months."

Carphone rose 4 per cent to 259p, one of the top gainers in the FTSE 100.

The index itself was up 25.1 points at 6,075.8 by 10.55am, driven by shorters closing out of banks and travel stocks, such as British Airways, up 3 per cent at 220p, as the oil price continued to fall back from its recent record high.

Alliance & Leicester, one of the most heavily shorted stocks in the index, recovered 3 per cent to 510p.

Thomas Cook, the tour operator, was up 2.5 per cent at 264p and Tui Travel gained 2 per cent to 237p after heavy falls this week. They were also helped by a confident trading statement from Go-Ahead, which is also somewhat dependent on the cost of fuel.

Go-Ahead was up 11 per cent at £16.14, the biggest riser in the mid-caps, and it also helped to buoy Stagecoach, up 5 per cent at 212.25p, and National Express, up 3 per cent at 891.5p.

WPP led the blue-chip fallers, dropping 8 per cent to 582p after it reported weaker-than-expected first-quarter organic growth of 5 per cent, with revenues affected by a slower March in Western Europe.

Miners were also out of favour as metals prices continued to retreat, hit by the rising dollar. Antofagasta lost 4 per cent to 777.5p, also hurt by a downgrade from Evolution, which said that the price had got too high.

DS Smith was the worst-performing mid-cap, down 8 per cent at 130p after the cardboard box maker gave warning that it faced a challenging year ahead.

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