SEVERN TRENT shares leapt ahead by nearly 14 per cent while other utilities also posted big gains after it emerged that foreign investors were considering a £5bn takeover of the firm.

The interest in Severn from Canadian investment group Borealis and the Kuwait Investment Office triggered a rise of 252p to 2077p in the FTSE 100 company’s share price.

Investors welcomed signs of the return of merger and acquisition activity, with the FTSE 100 Index 54.3 points higher at 6686.1 – building further on gains last week when it reached a five-year high.

The market was buoyed by bullish comments from prominent hedge-fund manager David Tepper about the US economy, which also saw gains on the Dow Jones Industrial Average.

European markets were also up, while on the currency markets, the pound was down a little against the dollar and euro, buying 1.52 US dollars and 1.17 euros.

Amid the surge for utilities, United Utilities was up nearly three per cent, or 21p, at 760.5p and South West Water owner Pennon rose 29.5p to 695p in the FTSE 250 Index.

Analysts said the timing of the Severn move was surprising given that regulator Ofwat rules on prices every five years and will next year decide how much bills should rise by between 2015 and 2020.

However British water firms are prized by foreign investors and pension funds for their monopoly on customers and relatively stable returns.

Other top-flight risers included Babcock International after the engineering support services company reported a 16 per cent rise in underlying profits to £317.8m.

With Babcock improving its full-year dividend by 16 per cent and highlighting more opportunities for growth, its shares were just behind Severn at the top of the FTSE 100 risers board with a gain of 74p to 1163p.

Elsewhere, shares in Vodafone were flat at the close, at 193.5p, despite the promise of a £2.1bn dividend from its 45 per cent stake in US mobile operator Verizon Wireless.

It follows recent speculation that Verizon Communications, which owns the rest of the business, is mulling a buy-out of the Vodafone stake.

And Marks & Spencer shares slipped as analysts awaited the launch of its autumn and winter clothing ranges.