* FTSE 100 up 0.8 percent, snapping three-session losing streak
* M&A activity lifts sentiment; Old Mutual up 3.2 percent
By Dominic Lau
LONDON, Aug 23 (Reuters) - Britain's leading share index ended a three-session losing run on Monday, helped by a spate of corporate takeover activity, though trading was thin.
HSBC said on Monday it was in talks to buy up to 70 percent in South Africa's fourth-largest bank, Nedbank, in which insurer Old Mutual has a controlling stake.
HSBC added 0.8 percent and Old Mutual rose 3.2 percent, while life insurers advanced 2.5 percent and Aviva, which has rejected a bid approach from rival RSA for some of its insurance units, gained 3.6 percent.
The FTSE 100 closed 39.56 points higher, or 0.8 percent at 5,234.84, after losing 1.5 percent last week -- its worst weekly percentage drop in seven weeks.
Volume on the UK benchmark was only half of its 90-day daily average.
The index is trapped between 5,310.82, its 50-percent Fibonacci retracement of the peak in April to the low on July 1, and 5,187.41, its 38.2-percent retracement level.
Sentiment has been aided by a slew of merger and acquisition activity, even through data from the United States and other parts of Europe is pointing towards a slower global recovery.
Miner BHP Billiton faced a battle for the takeover of Potash Corp after the board of the Canadian company urged shareholders to reject BHP's hostile $39 billion offer and said it was in talks with potential suitors for a superior deal.
BHP put on 0.5 percent, in line with a 0.5-percent gain for the mining sector.
However, Jawaid Afsar, trader at Securequity, said the low volume signalled investors were not fully convinced that some of the M&A news was going to happen.
"It is indicative of somebody desperately trying to keep this market higher," he said. "We don't know for sure whether these are concrete deals. Until that happens, I am afraid the market is going to sell off in a couple of days' time."
An Indian oil ministry source said on Monday all options were open for state energy firms to make a counter bid to Vedanta Resources' proposed offer to buy a majority stake in Cairn India from Cairn Energy. Vedanta eased 0.2 percent, while Cairn Energy added 0.9 percent.
In the United States, Hewlett-Packard launched a $1.6 billion bid for data storage firm 3PAR, topping an offer by rival Dell Inc.
Global mergers and acquisitions have hit nearly $200 billion so far in August, $77 billion shy of the record set in 1999 for what is typically one of the quietest months of the year, Thomson Reuters data showed.
M&A CYCLE BREWING?
Adding to the M&A euphoria, SABMiller, up 1.7 percent, and Asahi Breweries are looking at Foster's Group's beer operations, sources said.
"For M&A to take hold, you need a credit cycle. The credit cycle isn't here yet," said Robert Quinn, European strategist at Standard & Poor's equity research.
"You are going to get pockets of M&A in high conviction areas ... It's too soon for that. M&A is a classic mid-to-late cycle play."
Valuations for the UK benchmark remained cheap. Its one-year forward price-to-earnings stood at 9.96 against a 10-year average of 14.88, according to Thomson Reuters Datastream.
The UK index also offered better yield than the 2.97-percent from benchmark 10-year gilt. The FTSE 100 had a dividend yield of 3.5 percent, Datastream showed. (Graphics by Scott Barber; Additional reporting by David Brett; Editing by Jon Loades-Carter)