Fresh takeover talk surrounding Allied Domecq failed to keep the FTSE 100 Index in the black yesterday .
The Footsie surrendered earlier gains to end the session 2.4 points off at 5041.8.
Allied shares finished the day at the top of the Footsie risers as investors assessed the probability of a joint bid by French group Pernod Ricard and the US owner of Jim Beam bourbon.
However, downbeat economic data showing input prices rising at the highest level for more than four years helped limit gains in London.
Even though manufacturers were largely shielding customers from the hike in raw material costs, analysts said the data raised the prospect of higher interest rates later in the year.
Guinness owner Diageo benefited from the flurry of interest in Allied shares as investors speculated on whether it would try to cherry pick its rival's wine portfolio.
While Allied added two per cent or 111/2p to 533p, Diageo strengthened 41/2p to 743p ahead of its half-year results on Thursday, which are expected to show underlying revenues growth of six per cent after stripping out the impact of currency swings.
Compass rose 3p to 263p after a trading update reassured investors it was continuing to win contracts and that like-for-like revenues were on course to rise by at least six per cent in the current year.
ICI extended its recent rally, rising 3p to 278p and its highest level since the summer of 2002, after broker CSFB raised its target price for the chemicals-to-paints group.
Takeover activity was brisk outside the FTSE 100 Index, with online auctioneer QXL Ricardo jumping 27 per cent or 2321/2p to 10771/2p after a consortium featuring senior management formally raised their offer for the company.
TalkSPORT owner The Wireless Group moved three per cent higher or 21/2p to 921/2p on confirmation that it was studying a takeover proposal involving chief executive Kelvin MacKenzie and other senior bosses.
And shares in Highbury House Communications climbed 0.13p to 91/2p after it accepted a £96.5 million takeover offer from Future, formerly known as Future Network. Future investors were less impressed as its shares fell two per cent or 11/2p at 813/4p.
Elsewhere, British Energy shares were under pressure following the nuclear generator's first set of quarterly results since its restructuring. The third-quarter losses of £ 87 million were worse than expected following problems at some of the company's sites. Shares fell 61/4p to 2483/4p.
The biggest Footsie winners were Allied Domecq, up 111/2p to 533p, Rexam lifting 9p to 4541/4p, Reckitt Benckiser adding 26p to 1635p and GlaxoSmithKline picking up 20p to 1259p. Among the losers were the Hilton Group down 6p to 3181/2p.