Tobacco companies bolster a bruised UK FTSE 100

Reuters - UK Focus

* FTSE 100 up 0.3 pct, after four days of losses

* Imperial Tobacco (LSE: IMT.L - news) and BAT buoyed by merger activity

By Sudip Kar-Gupta

LONDON, July 11 (Reuters) - Britain's top equity indexrebounded on Friday as merger activity lifted tobacco shares,enabling the stock market to regain some poise after four daysof losses.

Imperial Tobacco led the gainers with a 3 percentrise, after saying it was in talks with Reynolds andLorillard (NYSE: LO - news) to acquire certain assets and brands the twocompanies may sell.

Reynolds and Lorillard are negotiating a deal that wouldmerge the United States' second- and third-biggest cigarettemakers, Reuters has previously reported. Shares (Frankfurt: DI6.F - news) in BritishAmerican Tobacco (BAT), which owns 42 percent ofReynolds, also advanced 0.5 percent.

Together, Imperial Tobacco and BAT added the most points tothe FTSE 100, which was up by 0.3 percent - or 16.41 points - at6,688.78 points by the middle of the trading day.

The two tobacco stocks also benefited on Friday from their"defensive" characteristics of stable profits and dividends -often favoured by investors during times of market uncertainty.Financial markets have been unsettled by problems withPortuguese bank Banco Espirito Santo.

"We've seen investors switch into the more defensive stockssuch as BAT," said Brown Shipley fund manager John Smith.

The FTSE 100's retreat since the start of July has pushed itdown from peaks reached in late May, which took the index closeto record highs. Traders expect it to remain stuck in its recenttrading ranges, from a high just below 6,900 points to lowsaround 6,600.

"A trading range seems the most likely outcome," said LexVan Dam, a hedge fund manager at Hampstead Capital. (Additional reporting by Tricia Wright; Editing by Larry King)

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