DRUGS company Shire has seen its shares surge by 17 per cent after the FTSE 100 firm became the latest target for a US-based rival.

AbbVie first approached Shire at the start of May and said that its third and latest cash and shares proposal at the end of last month valued the company at 4626p a share, or £27.2 billion.

Shire rejected the approach and has advised its shareholders to take no action but shares still rose 633p to 4371p and to the top of the blue-chip risers board.

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"We've been quite bullish on pharma stocks due to the [merger and acquisition activity] for quite some time. We haven't sold Shire after the spike higher, we're just holding on to it," said Dafydd Davies, senior trader at Prime Wealth Group.

The merger and acquisition activity boosted the FTSE 100 Index, which was 17.1 points higher at 6825.2, despite flat trading elsewhere in Europe and a disappointing session in Asia.

Sterling eased from a five-and-a-half-year high against the dollar, at 1.70, as the America currency was helped by higher yields on US treasuries. The pound was also down against the euro, at 1.25.

The other focus of the session was on the banking sector after the start of conditional dealings in TSB.

The offer, which was priced at 260p per share, valued the business at £1.3 billion and involved the sale of 35 per cent of the business by Loyds Banking Group instead of the 25 per cent originally planned.

Shares rose by around 12 per cent to 290p.

Meanwhile a surprise move by Sainsbury's to enter the discount market in a joint venture with Danish supermarket Netto had a negative impact on shares.

The Danish company, which left the UK in 2010, said it will open 15 stores in the UK next year. Netto owner Dansk Supermarked and Sainsbury's will invest £12.5 million each.

Sainsbury's said the move gets it into the fast growing discount sector, worth an estimated £10 billion a year, but it also admitted it will book start-up losses of £5 million to £10 million on the venture in the year to March 31. Shares fell 4.5p to 316.8p.

Royal Mail shares were lower after it provided warnings to the regulator over the threat to the universal delivery service posed by competitors such as TNT Post.

The newly privatised company said the lack of intervention from Ofcom would undermine its ability to reach a five to ten per cent earnings margin and TNT Post's plans would reduce its revenues by over £200 million in 2017-18. Royal Mail slipped 0.6p to 483.7p.

The biggest risers on the FTSE 100 were Shire up 633p to 4371p, International Airlines Group up 9p to 384.6p, Whitbread up 103p to 4403p and British Sky Broadcasting up 20p to 891.5p.

The biggest fallers on the FTSE 100 were Melrose down 7.5p at 262p, CRH down 35p to 1622p, BG Group down 20.5p to 1239.5p and Vodafone down 3p to 191.9p.