Takeover action spurred UK stocks higher on Wednesday, with music group EMI surging after rejecting a bid from Warner Music and steelmaker Corus rising on talk of a possible offer from Russia's Severstal.

Traders reported speculation that a consortium led by Severstal was considering an offer for Corus at 520 pence a share, driving the stock up 6 percent by mid-morning. By late morning the shares were up 3.3 percent at around 443 pence. Corus declined to comment on speculation of a bid from an unidentified suitor.

Obviously with the fact that Mittal and Arcelor have decided to get together, the feeling was that Severstal and others now are going to start looking at consolidation, one trader said, although he urged caution on the talk.

I wouldn't want to comment on the veracity of this rumour. There are a lot of people trying to make some sort of mileage out of this.

Elsewhere, software maker Sage rose 1.7 percent as investment bank Goldman Sachs took the stock off its sell lists, and drinks can maker Rexam gained 1.3 percent as Merrill Lynch raised it to buy.

By 0919 GMT, the FTSE 100 index was up 11.6 points, recouping an initial drop to trade at 5,663.9 points. The market had slumped in recent weeks from five-year highs but analysts said stocks now appeared to be stabilising.

You're seeing a little bit of risk being put back on to the table and investors wanting to take advantage of better valuations, said Graham Neale, an analyst at Killik & Co Stockbrokers.

We think that the shake-out in that respect has largely completed in the short-term and whilst you'll see continued volatility and perhaps not much overall upward strength, we do think the market is well supported.

The session's slight gains came despite heavy losses on Wall Street, where stocks tumbled on continued uncertainty about how aggressive the Federal Reserve will raise interest rates to fight inflation.

FLYING HIGH

Shares in music label EMI, whose artists include Coldplay and Robbie Williams, soared 9.3 percent after EMI rebuffed an approach worth 2.5 billion pounds from smaller U.S. rival Warner Music, saying the bid was wholly unacceptable.

Some analysts, however, were attracted by the price.

In the short term, the attractions of a 320p cash offer are obvious, as an offer at this level would be a 24 percent premium to our standalone fair value target, stockbroker Numis told clients.

Stocks trading ex-dividend took some shine away from the UK market, including United Utilities, down 3 percent, and Severn Trent, off 2.7 percent.

Among smaller movers, engineering firm Morgan Crucible added 4.2 percent as it forecast that first-half operating profit before restructuring costs would be ahead of expectations.

But recruitment firm Hays lost 6.9 percent despite saying its annual results were likely to be at the top end of expectations. The shares were hit by fears of higher unemployment in Britain.

The company still relies heavily on the UK for its profits, said brokerage Seymour Pierce. The employment background in the UK appears to be getting worse with unemployment levels rising consistently this year.

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