* FTSE gains 0.8 percent
* Miner rally on tax hopes, BHP faces competition for Potash
* Financials higher, HSBC in talks with OML over Nedbank
By David Brett
LONDON, Aug 23 (Reuters) - Britain's top share index rose by midday on Monday, led by miners which were boosted by hopes that a punitive mining tax might be scrapped, and supported by financials on M&A activity.
By 1055 GMT, the FTSE 100 was up 43.83 points, or 0.8 percent, at 5,239.11, after three consecutive sessions of losses, and having ended 0.3 percent lower at 5,195.28 on Friday, its lowest close since July 20.
Miners gained as investors speculated that inconclusive weekend elections in Australia would deliver a change of government, ushering in a new minority conservative rule that would scrap a planned mining tax.
Rio Tinto and BHP Billiton added 1.9 and 2 percent respectively.
BHP Billiton, however, faces a battle for the takeover of Potash Corp.
Potash's board urged shareholders to reject BHP Billiton's hostile $39 billion offer and said it was in talks with a number of potential suitors for a superior deal.
"Traders are going to want to see some legs behind some of the bid talk stories or they could be forced into cashing in their gains early," Joshua Raymond, market strategist at City Index counselled.
Energy shares reversed early losses as risk appetite returned among investors.
BG Group, which rose 6 percent on Friday on M&A speculation, added 0.3 percent, while Royal Dutch Shell, mentioned as a potential suitor, gained 0.1 percent.
Cairn Energy climbed 2.6 percent after it said it had informed India's Directorate General of Hydrocarbons of a discovery of oil and gas in an onshore block in the Krishna Godavari basin.
Vedanta Resources' proposed acquisition of a majority stake in Cairn India came under threat from India's petroleum ministry, which wants state-owned Oil and Natural Gas Corp to be given a chance to buy the holding, the Mint newspaper reported on Monday.
Oil and gas services company Petrofac gained 2 percent after it forecast a 20 percent rise in net profit for the full year as its backlog of contracts continued to grow and it won its first contract in Iraq.
FINANCIALS GAIN
Banks were higher with HSBC up 0.8 percent on reports it will buy up to 70 percent of South Africa's Nedbank, in a potential $6.8 billion deal that would give Europe's largest lender a gateway to the fast-growing African continent.
British insurer Old Mutual, which owns a controlling stake in Nedbank, was the top FTSE 100 riser up 4.6 percent.
The insurance sector, which has been awash with M&A speculation over recent months, provided strong support for the FTSE.
Legal and General and Aviva, both subject of recent bid talk, gained 1.8 and 3.2 percent respectively.
Pharmaceutical giant GlaxoSmithKline (GSK) climbed 1.5 percent as it started final trials of its new vaccine to prevent shingles.
Africa's biggest generic drugmaker Aspen Pharmacare, which is 19 percent owned by GSK, said full-year headline earnings per share likely rose by 25 percent boosted by its South African operations.
The world's largest builders merchant distributor Wolseley gained 3.5 percent as Numis upgraded its rating on the firm to "buy" from "add", saying the recent reaction to disappointing macro data had been overdone. (Editing by Jon Loades-Carter)