Gains in oil stocks and Shire lift FTSE

By Sudip Kar-Gupta

LONDON (Reuters) - A rise in major oil stocks and drugmaker Shire (L:SHP) helped Britain's top equity index extend its rebound on Tuesday after falling to 15-month lows last week.

An advance of nearly 2 percent in both BP (L:BP) and Royal Dutch Shell (L:RDSa) added the most points to the blue-chip FTSE 100 index (FTSE), as the energy sector was buoyed by stronger oil prices.

Brent crude oil , which had fallen to four-year lows last week, rebounded to rise to about $86 a barrel after data showed robust oil demand in China, which is the world's largest energy consumer.

"The oil majors are benefiting from a rise in the underlying oil price, but unless the crude oil price can move much further beyond last week's lows and hold onto the rebound, those oil stocks could fall back again," said Dafydd Davies, partner at Charles Hanover Investments.

ARM FALLS

The FTSE 100 index (FTSE) was up by 1 percent at 6,331.30 points by the middle of the trading session.

The UK stock market was also given a lift by a 2.5 percent rise at Shire, after Reuters reported that Allergan (N:AGN) shareholder Paulson & Co was urging the firm to merge with Shire as an alternative to a deal with hostile bidder Valeant Pharmaceuticals (TO:VRX). Online fashion retailer ASOS, which is not listed on the FTSE 100 but is part of the broader London stock market, also surged 17.6 percent after ASOS expressed confidence it could reach its target of 2.5 billion pounds in annual sales by 2020, with price cuts helping to reignite growth after three profit warnings this year.

However, chip designer ARM (L:ARM) missed out on the broader market rally, falling 4.4 percent after ARM's third quarter results came in below some market forecasts.

The FTSE 100 hit a peak of 6,904.86 points at the start of September, its highest since early 2000.

The index then slumped last week after weak European economic data, but some traders said the FTSE's rebound at the start of this week meant there was a good chance that it could now push on for the rest of October.

"I expect stocks to post gains across the board this week," said H2O Markets chief market strategist Mike Jarman.

(additional reporting by Atul Prakash; Editing by Ruth Pitchford)