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* FTSE 100 up 0.4 pct on the day, 2.6 pct for the week
* Vodafone buoyed by bid speculation when VZW deal completed
* Analysts reckon index will hit a record high soon
By Joshua Franklin
LONDON, Feb 21 (Reuters) - Britain's benchmark share indexrose on Friday and posted its steepest weekly gain in sevenmonths, as bid speculation around index heavyweight Vodafone led the market higher.
Mobile operator Vodafone rose 3 percent to 236.50 penceafter both BofA Merrill Lynch and UBS called it a potential bidtarget once it sells its stake in U.S. mobile phone companyVerizon Wireless.
Speculation about a takeover has been going on for severalmonths, however, and some doubted one was likely, although theystill thought Vodafone was a stock worth holding.
"We don't rate the bid prospects as high, but we still thinkthere's value in Vodafone," said SVM Asset Management managingdirector Colin McLean.
Vodafone added the most points to the FTSE, andtraders said the payout to shareholders from the Verizon dealshould boost the broader UK stock market in the coming weeks.
"Obviously, the return of cash is going to provide somestimulus to the market," said Cavendish Asset Management fundmanager Paul Mumford.
The FTSE closed up 25.07 points, or 0.4 percent, at 6,838.06points, for a gain of almost 7 percent from an early Februarylow. That helped the blue-chip index to a weekly advance of 2.6percent, its biggest since July last year.
"The market is reasserting its strength, and I am inclinedto follow it," said Valerie Gastaldy, head of technical analysisfirm Day-By-Day, adding that the FTSE should soon be heading toits all-time high of around 6,950 points.
Shares in housebuilder Persimmon gained 1.9 percent,as JP Morgan analysts tipped the sector to continue to benefitfrom a pick-up in the UK housebuilding industry.
Expectations of new contract wins helped ARM Holdings push higher in afternoon trading. Shares in the Britishchip designer finished up 2.4 percent at 970 pence, its highestclosing price since the end of January.
Aerospace group BAE Systems also rose 2.7 percent,recovering slightly after an 8.3 percent fall in the previoussession when it warned of a drop in earnings this year.
The FTSE, which rose 14.4 percent in 2013 to post its bestannual gain since 2009, is up 1.3 percent since the start of2014.
