Bonds are expected to fall on concern that the Bank of England's Monetary Policy Committee won't increase interest rates after its monthly meeting, extending the period of rate uncertainty that has weighed on gilts recently.
"The mergers and acquisitions activity is going to be the dominant theme," said Roger Monson, the chief equity strategist at Daiwa Europe. "The FT- SE may make a run towards 6,000, but it probably won't get there."
The FT-SE 100 index rose 15.7 points, or 0.27 per cent, to 5,567.3 last week, setting closing records on Thursday and Friday.
SmithKline Beecham led gains on Friday, rising 12p to 760p amid speculation it may be the target of a hostile takeover bid by Glaxo Wellcome.
The two drug companies called off a merger on Tuesday that would have created the world's largest drugs group.
The FT-SE may not gain much further, though, until investors see the outcome of the Bank of England meeting. The rate decision will be announced at noon on Thursday. The benchmark interest rate stands at 7.25 per cent after the last rise in November.
In a survey of economists by Bloomberg News, only three of 21 respondents expected the central bank to increase rates by a quarter-point next week.
Economic reports due next week are seen as having little effect on gilts, with traders and investors focusing on the MPC meeting. Those reports include purchasing managers' surveys on both manufacturing and service industries, narrow money supply growth and consumer credit, and a survey of retail sales.
The benchmark 7.25 per cent, 10-year government bond yield rose six basis points on Friday to 6.09 per cent, hurt by falls overseas.
The yield on the March short sterling futures contract, a measure of UK interest rate expectations, rose three basis points to 7.58 per cent, suggesting some investors are concerned rates will rise again.
A series of earnings reports by companies that make much of their profit abroad may hold stocks back. Those companies are likely to have suffered from the impact of the strong pound and the economic crisis in Asia. These include Inchcape, which makes much of its profit in Hong Kong, the mining company Billiton and engineering stocks Vickers and BICC.
Investors may watch what companies say about the future impact of the Asian crisis more than the earnings numbers themselves. "The test will be in the chairmen's statements," said Graham Campbell at Edinburgh Fund Managers.
Among other major companies reporting earnings next week are Halifax, Psion, Zeneca Group and Royal & Sun Insurance Group.
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