* Cadbury rockets after rejecting takeover offer from Kraft
* Food producers boosted by Cadbury bid
* Banks up as risky assets gain favour
By Harpreet Bhal
LONDON, Sept 7 (Reuters) - Britain's leading share index jumped 1.7 percent on Monday, after a proposed bid for Cadbury by Kraft raised hopes of a more general pick-up in merger activity and lifted banks and commodity shares.
The FTSE 100 closed up 81.48 points at 4,933.18, as it came close to beating its high for the year, while registering its biggest percentage gain in more than two weeks.
Cadbury soared 38 percent to its highest closing level since June 2007, after North America's Kraft Foods announced a $16.7 billion bid which was rejected by the world's second-largest confectionery group.
"What's really significant about this (bid for Cadbury) is that it is another statement of confidence that managers of companies have in the prospects for their operating environment given that the recovery is now underway in the global economy," said Mike Lenhoff, chief strategist at Brewin Dolphin.
"My guess is that we are going to see more of this. This is exactly the kind of thing you tend to see during recovery phases of the cycle," he said.
Meanwhile Associated British Foods gained 4.1 percent after the firm increased its full-year earnings forecast on the back of strong results from its Primark discount clothing retailer chain.
Unilever also gained, adding 2.2 percent.
Banks were higher as investors turned to riskier assets.
Lloyds Banking Group gained 4.5 percent after the Sunday Telegraph said the lender was looking to convert 6.79 billion pounds worth of preference shares into common equity in a further bid to shore up its finances.
Barclays, Royal Bank of Scotland, Standard Chartered and HSBC were between 0.6 and 2.2 percent higher.
Miners found strength from rising metals prices. Lonmin, reported by weekly newspaper the Observer to be a renewed takeover target for Xstrata, rose 5.9 percent, with the latter up 2.5 percent higher.
Vedanta Resources, Antofagasta, Rio Tinto and Kazakhmys climbed between 2 to 3.1 percent.
The oil price was in focus ahead of Wednesday's OPEC meeting which is expected to maintain current output levels.
Royal Dutch Shell, BG Group, BP Tullow Oil and Cairn Energy added between 0.6 and 3.2 percent.
Among other gainers, British Airways rose 1.8 percent following a press report it was considering a bid for Lufhansa's UK airline BMI.
Thomas Cook Group and TUI Travel were 1.4 and 4.6 percent higher respectively. Banks holding insolvent German retailer Arcandor's shares in Thomas Cook are expected to place the 43.9 percent stake in the market within days, sources close to the matter said on Monday.
G20 AGREEMENT
A weekend agreement by G20 finance ministers and central bankers to keep economic stimulus measures in place for longer added to the positive sentiment.
Thomson Reuters was among a handful of fallers, losing 1.7 percent.
The firm wants to delist in London to simplify its capital structure and eliminate the persistent discount at which the London shares have traded to its North American listings.
Burberry, Investec, Segro and Rentokil are set to enter the FTSE 100 later this month after a quarterly rejig and to replace Thomson Reuters. (Editing by Greg Mahlich)