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* FTSE 100 up 1.0 percent
* Vodafone rises on 260 pence-per-share bid talk
* Verizon, AT&T reported as potential bidders for Vodafone
* ICAP climbs on readacross from Nasdaq's eSpeed purchase
* Index gains cautious with FTSE near five-year highs
By David Brett
LONDON, April 2 (Reuters) - M&A expectations helped pushBritain's top share index back towards five-year highs bymid-session on Tuesday, with heavyweight Vodafone rumoured to bethe subject of a multi-billion-pound breakup bid.
Vodafone rallied 4.2 percent after the FinancialTimes Alphaville blog cited "usually reliable people" as sayingthat Verizon Communications and AT&T had beenworking together on a breakup bid for the British group.
The bid would be pitched at about 260 pence a share, arounda 40 percent premium to the current price for Vodafone, theworld's second largest mobile operator.
Vodafone's weighting accounts for around 6 percent of theentire FTSE 100 and the company's shares added nearly 17points alone to the index on Tuesday.
London's blue chips climbed 64.21 points, or 1.0 percent to6,475.95 by 1137 GMT.
"I do not think there is an M&A premium in the market at themoment, but if companies were to come into the market and say'we think companies are good value and we want to use our strongbalance sheets to make acquisitions', then that could push themarket even higher," said James Humphreys, senior investmentmanager at Duncan Lawrie Private Bank.
Interdealer broker ICAP, hit hard by a recent profitwarning, rebounded 7.1 percent after traders reassessed thecompany's value following a move by U.S. exchange operatorNasdaq to buy rival electronic Treasuries-tradingplatform eSpeed from BGC Partners.
Valuing ICAP's BrokerTec platform on a similar revenuemultiple to eSpeed implies the business is worth about 1.6billion pounds, equivalent to three-quarters of ICAP's currentmarket cap, Shore Capital said in a note.
"The read-across from this deal is essentially positive forICAP because it underscores the value inherent in its electronicbroking assets," it added.
CAUTIOUS GAINS
A revival in merger and acquisition activity and continuedstimulus measures from world central banks helped equity marketsrise in early 2013, despite a resurgence of the euro zone debtcrisis which saw Cyprus bailed out on tough terms last month.
But investors are becoming more cautious in their assetallocation, with defensive sectors such as healthcare, tobaccoand utilities leading gainers in recent weeks as worries aboutEurope persist.
Humphreys at Duncan Lawrie said defensive sectors continueto offer better relative value than more cyclical plays such asbanks, and that he would be buying into good quality companieslike credit-checking firm Experian, testing group Intertek and the world's biggest catering firm Compass,in part as protection against a market correction.
European equity funds posted their biggest outflows in morethan six months during the week ending March 20 as a threatenedlevy on all bank deposits in Cyprus raised fears of bank runs inother indebted euro zone countries, EPFR Global data showed.
Central bank stimulus continues to provide support forequities, however, and is helping to drive a slow rotation intothe asset class from fixed-income and money market funds,according to JPMorgan strategist Mislav Matejk.
"The asset rotation is likely to provide the underlying bidto the market in the face of potential seasonal volatility.Having said that, we recognise that global equities are sittingon strong six-month gains, and some consolidation would not beunhealthy," he said in a note.
(Editing by Catherine Evans)
