* FTSE 100 up 0.3 percent spurred on by M&A activity
* Miners rally as gold above $1,000 an ounce
* Oils gain as crude jumps over $3
By David Brett
LONDON, Sept 8 (Reuters) - Britain's top share index rose for a third straight session on Tuesday, buoyed by the return of M&A activity and supported by hawkish economic data and with heavyweight mining and energy stocks leading the gainers.
The FTSE 100 closed 14.16 points higher, or 0.3 percent, at 4,947.34, hitting a fresh highest closing level in 11 months.
The UK index is up 43 percent since its year low in March. However, it remains 8.7 percent shy of its level prior to the collapse of Wall Street firm Lehman Brothers a year ago, which jolted the financial markets worldwide.
"It's been a session dominated by M&A activity yet again," said Jimmy Yates, head of equities at CMC Markets, referring to Orange owner France Telecom's plan to merge with Deutsche Telekom's T-Mobile, plus continued speculation about potential suitors for Cadbury.
Confectionery group Cadbury rose 0.4 percent amid hopes Kraft Foods might have to raise its offer by up to 40 percent after shares in the world's second biggest confectionary maker increased by almost half on Monday on news of the approach.
Cadbury rejected a $16.7 billion bid from North America's biggest food group Kraft on Monday.
Cazenove analysts said Nestle might make a counterbid for Cadbury, perhaps in a joint approach with U.S. chocolate group Hershey Co. Nestle declined to comment on Monday.
Vodafone gained 1.7 percent, with traders citing relief that it was not involved in expansion in the UK market, after Deutsche Telekom and France Telecom said they had launched exclusive talks to merge their UK mobile units.
Miners added the most points to the index, cashing in on a buoyant gold price. Gold surged through the $1,000 an ounce mark to its highest level since February, boosted by a weak dollar and with investors looking for a hedge against inflation.
Gold miner Randgold Resources gained 3.3 percent, while Kazakhmys, Rio Tinto, Vedanta Resources and Lonmin rose 2.5 to 6.4 percent.
Economic data also added to the blossoming view that the domestic UK economy was emerging from recession.
British manufacturing output rose at its fastest monthly rate in 1-1/2 years in July, with factory output rising 0.9 percent, three times faster than analysts had expected, which helped push up sterling as well as supporting stocks.
"The solid manufacturing data have given markets a bit of a lift. It tells us that the de-stocking phase is coming to an end and that restocking has possibly started," said Peter Dixon, economist at Commerzbank.
Britain's economy grew by 0.2 percent in the three months to August, the National Institute of Economic and Social Research said.
MIXED BAG
Not all the economic news was positive. A gauge of the strength of the U.S. job market fell slightly in August and pointed to a flat employment market for the rest of the year, said the Conference Board, a private research group.
A survey by the British Retail Consortium showed UK retail sales fell on the year last month for the first time since May as cost-conscious consumers refrained from splashing out on non-essential items.
"The mixed messages do not seem to be deterring traders from pushing this market higher so instead of the September slump it seems we may be in store for the September surge," said Yates.
Oil stocks motored higher supported by the price of crude, which rose more than $3 to beyond $71 a barrel, underpinned by comments by delegates from an OPEC meeting that began on Wednesday. Analysts said there may be more rhetoric on compliance at the meeting but no change in output targets.
BG Group, Cairn Energy, Tullow Oil, Royal Dutch Shell and BP climbed between 0.6 and 3.5 percent.
Banks were the biggest losers as talk of new rules to reshape the global financial system to prevent another Lehman Brothers-style collapse, hung over the stocks.
HSBC, Barclays and Royal Bank of Scotland shed 1.1 to 1.6 percent. (Editing by Karen Foster)