A buoyant telecoms sector, stirred by growing takeover speculation, has kept the London share market in positive territory at lunchtime.

The FTSE 100 was up 25 at 5,904, at 1400 GMT.

However, drifting European stocks and a retreating futures market pulled the blue chip index off its best level,dealers said.

Turnover remained light at 300m shares by midday. Liffe's March Footsie contract was 13 points lower at 5,917.

"We're seeing the same pattern as yesterday, with good overseas interest in the telecom and healthcare sectors," said Teather & Greenwood salesman Peter Caulkett.

But the market has become almost a 'two-sector' environment, with funds seeking out the big stocks and ignoring the broader market, he added.

"I'm a little cautious on the leaders now, with reports on Christmas sales from the retailers approaching and the results season kicking in after that."

However, on the upside, the prospect of further interest rate cuts and the large amount of money still looking for a home offered support, he noted.

Telecom issues surged on reports that Vodafone has made a $45bn offer for US company AirTouch Communications.

The sector's move consolidates yesterday's pan-European telecom gains, fuelled by strong subscriber figures and institutional buying.

Telewest Communications jumped 9.7% with Colt Telecom up 7.6%. Vodafone was 2.8% ahead while Securicor rose 3.1%.

There was also institutional interest in Zeneca, up 2.2%. "Buyers of Zeneca are almost in a 'no-lose' situation," Mr Caulkett suggested, because if a surprise counter-bidder doesn't materialise they should still reap the rewards of the Astra merger.