* FTSE 100 ends 0.3 pct up, outperforms other Europe indexes

* Deal hopes buoy Smith & Nephew (LSE: SN.L – news) , Weir – traders

* Results disappointment hits Kingfisher (LSE: KGF.L – news) shares

By Atul Prakash and Lionel Laurent

LONDON, May 29 (Reuters) – Britain’s top share index advanced to trade near a 14-year high on Thursday, with takeover speculation surrounding companies such as Smith & Nephew and Weir Group (Frankfurt: 42W.F – news) lifting investors’ appetite for riskier assets.

The FTSE 100 index finished 0.3 percent higher at 6,871.29 points, outperforming slightly lower benchmark indexes in France, Germany, Italy and Spain. Trading volumes were just 39 percent of the index’s 90-day daily average because of a public holiday in many European countries.

The index ended just below the 14-year high scaled this month and was less than 2 percent away from a record peak set in 1999. Analysts said the positive momentum following M&A talks could help the index to set a new record high in the near term.

“The improving economic backdrop and the pick up in business confidence are likely to be supportive for a pickup in M&A activity,” said Robert Parkes, equity strategist at HSBC.

“In addition, valuations are not stretched and there appears to be an element of pent up demand as a result of the depressed level of deal activity we have seen over the last few years.”

Medical-devices manufacturer Smith & Nephew was the top performer in the FTSE 100 index, up 3.6 percent, extending Wednesday’s gains after a press report of a planned takeover bid from U.S. rival Stryker (Berlin: SYK.BE – news) .

Although Stryker denied it was planning a bid, traders said the return of takeover speculation would continue to support S&N shares in particular and the broader market in general.

Credit Suisse (NYSE: CS – news) said in a note that if such a transaction were to materialise, the combined entity would significantly boost the company’s market share in major areas.

“Depending on the capital structure applied and the prevailing debt financing costs, we think there would be substantial additional non-operational, purely financial gearing related benefits in such a transaction.”

Engineering firm Weir Group gained 1 percent a day after it abandoned efforts to acquire rival Metso (Dusseldorf: VLM.DU – news) . The Finnish company had rejected Weir’s second, improved takeover bid.

Bankers have said a failure to merge with Metso could make Weir, already frequently the subject of takeover speculation, a target for big players such as General Electric (Swiss: GE.SW – news) or Honeywell that are keen to access the Glasgow-based company’s lucrative position in U.S. shale.

Merger news also spread to hedge-fund managers, with mid-cap Man Group (Other OTC: MNGPF – news) gain 5 percent after confirming it was in talks to buy U.S. firm Numeric Holdings.

But some disappointment on the earnings front countered the M&A froth in the market.

Kingfisher, Europe’s biggest home improvement retailer, fell 4.9 percent, the top decliner in the FTSE 100, even though the group reported a 20 percent rise in first quarter retail profit and said it would pay a 100 million pound ($ 167 million) special dividend.

“(Results were) marginally behind market and our expectations because of the margin impact to UK profits and a weaker than expected performance in France and China,” Cantor Fitzgerald analysts wrote in a note to clients.

Despite recent gains in the broader market, some analysts advised caution and said equities had become vulnerable.

“If you look back at most stock market cycle highs, you’ll see a raft of IPO’s and M&A activity typically signaling the top of the market,” Michael Jarman, head of equity strategy at H2O Markets, said.

“I’m not suggesting we are at the top right now, but I actually believe investors should start to look at this recent flurry of M&A activity and IPO listings as a warning signal.” (Editing by Catherine Evans and Toby Chopra)