Shares had a volatile session today as a powerful early surge gave way to a sharp downturn in thin trading.

A flurry of deals kicked the morning off briskly, although a mixed set of official figures showed the trade deficit outside the EU was worse than expected last month.

However, trade within Europe was far more healthy than expected, leaving dealers split over the figures' significance for interest rates.

Weekend talk of cuts in European interest rates led to an improvement in continental markets, which gave some buoyancy to the City.

But by lunchtime the FTSE 100 Index was only marginally ahead at 5241.2 - 24.1 points up.

At one point the blue chips were 111.9 points ahead.

An early charge by banks and insurance groups was replaced by a surge in telecoms stocks after several brokers gave them a mention in morning briefings.

Demand for mobile phones is expected to be high in pre-Christmas trading, and Vodafone and Orange galloped ahead by 19p to 776p and 18.5p to 559.5p respectively.

Cable & Wireless also did well, leaping 26p ahead to 65p, while Colt Telecom, reporting later today, gained 15p to 660p.

Banking analysts welcomed news of a merger on the other side of the Irish Sea as two of Ireland's biggest financial groups announced they were in talks.

If Irish Life and Irish Permanent merged, they would become the country's third biggest bank but would dash Abbey National's rumoured hopes of taking over Irish Permanent.

Irish Life jumped 42p to 507p and Irish Permanent leapt 75p to 852.5p.

After a strong start, Abbey National fell 4p to £11.30.

Expectations of a takeover bid for telecoms group Ionica led the company up 20% in furious early trading before their suspension at 17.5p - up 3p on the day - pending an announcement.

Distributer Booker announced a further stage in its bid to focus down to food distribution with the sale of its fish processing operations for £47.5m.

Shares gained a penny to 125p. Retailer Kingfisher announced a £750m push into the DIY market, driving shares up 11p to 525p.

The move is expected to create 20,000 jobs.

Yorkshire Water bought a Dutch biochemicals group for £15.5m but analysts shrunk from the deal, leaving shares down 4p to 515p.

Bilton reiterated its call for shareholders to refuse the hostile takeover bid by Slough Estates which values the company at 290p.

An independent valuation of the company valued it at 360p a share - 24% more than Slough's offer, Bilton said.