* FTSE 100 index up 0.2 pct, well off earlier highs

* Russia says starts military drills near Ukrainian border

* Bid speculation boosts healthcare stocks

By Tricia Wright

LONDON, April 24 (Reuters) – Fresh tensions in Ukraine took

their toll on Britain’s top shares on Thursday, wiping out much

of the day’s gains, although expectations of deal-making in the

healthcare sector kept the market buoyant.

The FTSE 100 was up 15.69 points or 0.2 percent at

6,690.43 points as of 1512 GMT, having hit a six-week high of

6,724 earlier in the session.

Darkening the mood, Russian Defence Minister Sergei Shoigu

was quoted by the Interfax news agency as saying that Russia had

started military drills near the Ukrainian border in response to

operations by Ukrainian forces against pro-Russian separatists

and NATO exercises in eastern Europe.

The news prompted investors to lock in profits on a rally

which earlier in the session saw the FTSE 100 break through the

top of the range in which it has traded in the last few weeks,

where the peak was 6,706 points.

“We are obviously still looking at an uptrend for the FTSE,

but until we get a daily close through that key resistance

metric, then you are probably going to see a sideways to

downside bias,” IG (LSE: IGG.L – news) chief market strategist Brenda Kelly said.


Smith & Nephew (LSE: SN.L – news) , Europe’s largest maker of artificial

hips and knees, led the blue-chip gains by rising 3.4 percent

after medical device maker Zimmer Holdings Inc (NYSE: ZMH – news) said it

would buy orthopedic products company Biomet Inc.

The acquisition – the latest in a burst of deal-making and

bids in the healthcare industry aimed at either gaining scale or

specializing in certain disease areas – supported a long-held

view that Smith & Nephew might itself become a target.

Trading volume in Smith & Nephew was strong, at around four

times its 90-day daily average, contrasting with the FTSE 100 on

about two thirds.

“The whole healthcare industry is about to go through a

massive phase of consolidation; Smith & Nephew has always been a

potential target of bid speculation,” Joe Rundle, head of

trading at ETX Capital, said.

AstraZeneca (NYSE: AZN – news) , meanwhile, climbed 3.1 percent to a

record high, extending this week’s strong advance on Pfizer (NYSE: PFE – news) ‘s

reported interest.

Britain’s second-biggest drugmaker made no reference to the

Pfizer bid talk in its results statement on Thursday, noting

progress with new cancer drugs that might revive its fortunes as

it posted a 17 percent fall in core earnings per share.

The cancer drugs are seen as a big draw for the U.S. group.

Analysts at Deutsche Bank (Xetra: DBK.DE – news) said the figures looked consistent

with full-year guidance and, to a degree, represented the calm

before the storm as comparisons should worsen from the second

quarter, adding that much of the focus in AstraZeneca remained

on deal making.

Trading volume in AstraZeneca came to about twice its 90-day

daily average.

($ 1 = 0.5960 British pounds)

(Editing by Hugh Lawson)