* FTSE 100 up 0.5 pct

* IHG jumps after media reports of bid interest

* AstraZeneca (NYSE: AZN – news) falls after Pfizer (NYSE: PFE – news) walks away

By Sudip Kar-Gupta

LONDON, May 27 (Reuters) – Britain’s top equity index advanced on Tuesday, led by InterContinental Hotels Group (IHG) , which became the latest stock to be boosted by possible takeover interest.

IHG jumped 5.5 percent after Sky News reported that the hotelier had rejected a 6 billion pound ($ 10.11 billion) takeover offer from a U.S. bidder. A spokeswoman for IHG declined to comment on the report.

IHG’s advance made it the best-performing stock, in percentage terms, on the blue-chip FTSE 100 index, which rose by 0.5 percent, or 34.28 points, to 6,849.85 points mid-way through the trading day.

A pick-up in corporate bid activity has underpinned stock markets this year, enabling them to maintain a broad, upwards trajectory begun since the start of 2014.

Not all deals have come through, however: drugmaker AstraZeneca fell 1.9 percent on Tuesday after U.S. rival Pfizer walked away from making a formal bid for AstraZeneca.

Nevertheless, traders expressed confidence that the FTSE would march higher over the course of 2014 and challenge the 7,000 point level, which would mark a record for the index.

“It looks like the upwards momentum is still with us and that the uptrend should continue,” said Dafydd Davies, senior trader at London-based Prime Wealth Group.

Earlier this month, the FTSE climbed to 6,894.88 points, its highest level since December 1999, when it set a record peak of 6,950.60 points.

Although the index retreated 0.6 percent last week to post its biggest weekly decline in more than a month, technical analysts are still optimistic, and the FTSE remains up by around 1.5 percent since the start of 2014.

“There is still reluctance among traders to take it through 6,900 at this point. That said, the FTSE looks well supported up here and would probably have to break below 6,750 to alter that impression,” said Charles Stanley (LSE: CAY.L – news) analyst Bill McNamara.

($ 1 = 0.5936 British Pounds) (Additional reporting by Tricia Wright; Editing by Catherine Evans)