LONDON -- For every action there is a reaction, and for every U.K. investor there is a headless chicken. Having spent the best part of January punishing retail stocks on poor sales and banking shares on interest rate fears, on Wednesday investors showed an abrupt about face.

U.K. stocks pushed higher ahead of the Wall Street open and stayed there, partly on continued bid and merger rumors, but also on a sense that downward correction has probably been overcooked. The

FTSE 100

index ended the session 101.5 points, or 1.6%, higher at 6375.6.

Cable and Wireless

(CWP)

surged ahead on speculation that

Deutsche Telekom

(DT) - Get Report

is set to make a bid. Cable & Wireless closed up 83p, or 6.7%, to 13.20 pounds in good volume and DT ended 4.69 euros, or 7.1% higher, at 70.70 euros.

Vodafone AirTouch

(VOD) - Get Report

featured with a gain of 19 1/4, or 5.8%, at 348p as bid target

Mannesmann

(MNNSY)

indicated that it would be happy to settle for less than 50% of the marriage just so long as Vodafone increases the cash element of the bid. Mannesmann added 12.86 euros, or 5%, to 271.46 euros.

Electrical retailer

Dixons

, which owns the controlling stake in the Internet service provider

Freeserve

(FREE)

, provided another spark of hope with a robust 102p, or 10.2%, gain to 11.04 pounds in the wake of a buy note from broker

Teather and Greenwood

. However, it was not all smiles in the high-tech and media world, with

Pearson

down 62p, or 2.7%, at 22.60 pounds after a share placing this morning, equivalent to 2% of the issued share capital, to finance its Internet expansion plans.

Despite interest rate concerns, banking stocks managed to provide a number of positive performances.

NatWest

(NW)

moved up 34p, or 2.8%, to 12.34 pounds as the takeover war accelerated on rumors that

Lloyds TSB

is about to throw its hat into the ring. The word here is that Lloyds may be looking to pick up the jilted bride of the two Scottish banks currently wooing NatWest, making a bid for either

Bank of Scotland

or

Royal Bank of Scotland

. Lloyds TSB moved up 26p, or 4.2%, to 647, while Bank of Scotland ended 31p, or 4.9%, higher at 660. Royal Bank of Scotland finished 23p, or 2.3%, better at 10.35 pounds.

The major Continental bourses followed Wall Street's lead and booked solid gains Wednesday. The

Xetra Dax

in Frankfurt closed up 159.73, or 2.4%, at 6969.37 and the

CAC 40

in Paris finished 48.82, or 0.9%, higher at 5646.32. Amsterdam was the exception, as the

AEX

dropped 2.64, or 0.4%, to 637.39 amid a bout of profit taking in thin trading.

In Paris,

Vivendi's

(VVDIY)

apparent decision to leave Mannesmann alone to fend off Vodafone's hostile takeover bid helped the French mixed concern climb 3.3 euros, or 3.6% higher at 95 euros.

Blue chip financial shares in Frankfurt had a mixed day, with

Deutsche Bank

,

Dresdner Bank

and

Hypovereinsbank

finishing the day higher but

Commerzbank

closing lower. Deutsche Bank closed up 106 euros, or 1.4% to 79.46 euros, Dresdner ended 1.10 euros, or 2.1%, higher at 53 euros, Hypovereinsbank ended up 1.45%, or 0.9 euros, at 63 euros, while Commerzbank closed down 0.29 euros, or 0.9%, to 33.56 euros.