London stocks had extended gains by midday on Wednesday, with the top-flight index rising above 10,400 for the first time as Beazley surged on takeover news, although software stocks remained under pressure.
The FTSE 100 was up 1.2% 10,437.51. The index took a hit in the previous session as a host of stocks tumbled amid worries about the impact of AI, after Google-backed Anthropic launched a new AI tool for companies' in-house legal teams.
Dan Coatsworth, head of markets at AJ Bell, said: "The dust settled on Wednesday after a dramatic session for tech-related stocks amid new AI disruption.
"A lot of the focus since the AI theme emerged has been on the winners and while there has been attention on potential losers from the proliferation of artificial intelligence, this part of the story has mainly stayed in the background.
"That changed on Tuesday when a raft of data and software businesses endured double-digit share price losses on the launch of a new suite of tools from AI outfit Anthropic for the legal sector.
"Relx has a large presence in the legal space and was in the teeth of the resulting storm. It was among several names to endure double-digit declines as investors weighed the wider implications. To what extent AI can disintermediate traditional data analytics and software firms is not yet clear, but a lot of investors weren't sticking around to find out."
On the macro front, a survey showed that activity in the UK services sector grew in January at the fastest pace since last August, but job losses continued.
The S&P Global services PMI business activity index rose to 54.0 from 51.4 in December, coming in above the 50.0 mark that separates contraction from expansion for the ninth month in a row.
However, the survey also showed that hiring remained a weak spot for the services sector despite signs of a recovery in business activity and incoming new work. S&P noted that employment numbers have fallen in each month since October 2024, which represents the longest period of job shedding for 16 years.
The latest survey indicated a faster decline in workforce levels than in December, with anecdotal evidence highlighting squeezed margins, fragile market conditions and efforts to boost productivity through automation.
Tim Moore, economics director at S&P Global Market Intelligence, said: "The latest survey revealed an encouraging start to 2026 for the UK service sector, following a sluggish end to last year. Output growth was the fastest for five months, supported by an uplift in investment sentiment and greater new order intakes. A number of firms suggested that post-Budget clarity had contributed to a broader improvement in client confidence, while some also cited rising export sales.
"Despite a recovery in total new work, service providers still reported that consumer demand was constrained by squeezed disposable incomes, while risk aversion in response to geopolitical tensions was a factor holding back business spending.
"Service sector companies appear cautiously optimistic about their growth prospects for the next 12 months, with confidence the highest seen since October 2024. However, there were again gloomy signals for the UK labour market outlook as staff hiring decreased at a steeper pace in January as firms looked to offset rising payroll costs. Another sharp increase in overall input prices contributed to the fastest rate of output charge inflation for five months."
In equity markets, Beazley surged after it and Zurich Insurance said they had reached an agreement in principle on the terms of an £8bn takeover of the Lloyd's of London insurer.
Zurich will pay 1,335p per share, which is a 59.8% premium to the closing share price on 16 January, the last business day before the offer period. The offer comprises 1,310p in cash and a dividend of 25p for the year ended December 2025.
Hiscox and Lancashire also racked up healthy gains.
Energy sales, marketing and support services business DCC shot higher as it backed its full-year guidance and said third‑quarter adjusted operating profits had grown strongly, supported by solid organic growth and a first‑time contribution from recently acquired Austrian LPG business, FLAGA.
GSK rallied even as it said turnover growth would slow this financial year as it looked to counter the expiry of an HIV drug patent and a deal with the Trump administration to lower product prices in the US. The company expects sales to grow 3% to 5% this year, on a constant currency basis compared to 7% in 2025.
Housebuilder Berkeley Group was boosted by an upgrade to 'overweight' from 'neutral' at JPMorgan, which also hiked the price target to 5,000p from 4,700p.
SSE advanced despite forecasting a dip in annual earnings as mixed weather conditions offset an otherwise robust operational performance.
On the downside, Watches of Switzerland was still weaker but off earlier lows, having tumbled after it lifted its full-year sales outlook following strong trading in the third quarter but reduced its profit margin forecast.
Although the selloff in software stocks eased somewhat, Rightmove, Sage Group, LSEG, Relx, Pearson and Informa remained in the red.
AJ Bell's Coatsworth said it was concerning that there was "little sign of a share price recovery today, with bargain hunters not tempted to step in".