* FTSE 100 up 0.5 pct

* IHG rises after media report 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 main equity index advanced on Tuesday, led by InterContinental Hotels Group (IHG) , which became the latest stock to gain ground on potential interest from a bidder.

IHG rose 4.4 percent after Sky News reported it 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 biggest gainer in percentage terms, on the blue-chip FTSE 100 index, which was up by 0.5 percent, or 32.07 points, at 6,847.82 points going into the close of trading.

A pick-up in mergers and acquisition (M&A) activity has underpinned stock markets this year, enabling them to maintain a broad, upwards trajectory begun at the start of 2014.

But not all deals have come through. Drugmaker AstraZeneca fell 2.4 percent after U.S. rival Pfizer walked away from making a formal bid.

Traders remained confident that the FTSE would progress further this year to 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,” Dafydd Davies, senior trader at London-based Prime Wealth Group, said.

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,” Charles Stanley (LSE: CAY.L – news) analyst Bill McNamara said.

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