The index of leading shares hit 5,001.5 points - the first time it has been above 5,000 since 6 June 2002 - before falling back to close marginally down.

Takeover activity has lifted sentiment, along with strong results from the likes of Shell and lower oil prices.

Shares have also benefited from a good run on Wall Street.

The FTSE 100 spent the morning session on Wednesday in negative territory, but edged higher on the news a �1bn takeover approach for Somerfield, a company outside the top flight index.

It slipped lower again after US stocks opened down, ending the day off 5.1 points at 4990.4.

Dot.com crash

The FTSE 100 is still a way off peaks achieved in December 1999, when, fuelled by the internet boom, it finished the year at an all-time high of 6,950.

But the rise brings the FTSE closer to the levels seen before a slowdown sparked by the dot.com collapse and the September 11 attacks.

The index had been as low as in 3,287 in March 2003.

It 2004 it finished at 4,814.3, following a year in which investor sentiment was knocked by jitters over rising oil prices and interest rates.

Experts polled at the end of last year tipped the FTSE to make "slow and steady" gains in 2005, possibly reaching as high as the 5,500 mark.

"We are in a bull market, the UK economy's doing well," said Tom Hougaard, market strategist at City Index on Wednesday.

"I reckon it will grind higher until the middle of the year and could probably go up to 5,500 or 5,600."