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UK-MARKETS-BRITAIN-STOCKS:Healthcare deal hopes push FTSE to seven-week closing high
Reuters A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008. REUTERS/Toby Melville

By Tricia Wright

LONDON (Reuters) - FTSE hit a seven-week closing high on Thursday, bolstered by expectations of deal-making in the healthcare sector, though renewed tension in Ukraine dented the market's gains.

Smith & Nephew, Europe's largest maker of artificial hips and knees, led the blue-chip gains by rising 3.4 percent after medical device maker Zimmer Holdings Inc said it would buy orthopaedic products company Biomet Inc.

The acquisition - the latest in a burst of deal-making and bids in the healthcare industry aimed at either gaining scale or specialising in certain disease areas - supported a long-held view that Smith & Nephew might itself become a target.

Trading volume in Smith & Nephew was strong, at 4-1/2 times its 90-day daily average, contrasting with the FTSE 100 on about three quarters.

"The whole healthcare industry is about to go through a massive phase of consolidation; Smith & Nephew has always been a potential target of bid speculation," Joe Rundle, head of trading at ETX Capital, said.

The FTSE 100 closed up 28.26 points, or 0.4 percent, at 6,703.00 points, its highest close since March 7, though off an earlier peak of 6,724.

AstraZeneca climbed 3.3 percent to a record high, extending this week's strong advance on Pfizer's reported interest.

Britain's second-biggest drugmaker made no reference to the Pfizer bid talk in its results statement on Thursday, noting progress with new cancer drugs that might revive its fortunes as it posted a 17 percent fall in core earnings per share.

The cancer drugs are seen as a big draw for the U.S. group.

Analysts at Deutsche Bank said the figures looked consistent with full-year guidance and, to a degree, represented the calm before the storm as comparisons should worsen from the second quarter, adding that much of the focus in AstraZeneca remained on deal making.

AstraZeneca gave the biggest individual boost to the UK benchmark by far, contributing around a quarter to the index's points gain, in heavy trade, at about twice its 90-day daily average.

But the market's gains were eroded after Russian Defence Minister Sergei Shoigu was quoted as saying that Russia had begun military drills near the Ukrainian border in response to operations by Ukrainian forces against pro-Russian separatists and NATO exercises in eastern Europe.

The news prompted investors to lock in profits on a rally which earlier in the session saw the FTSE 100 break through the top of the range in which it has traded in the last few weeks, where the peak was 6,706 points.

"We are obviously still looking at an uptrend for the FTSE, but until we get a daily close through that key resistance metric, then you are probably going to see a sideways to downside bias," IG chief market strategist Brenda Kelly said.

(Editing by Hugh Lawson)