LONDON MARKETS: London Stocks Rise, Led By RBS, Petrofac

By Polya Lesova, MarketWatch

LONDON (MarketWatch) -- London's benchmark stock index rose on Monday, buoyed by gains for Royal Bank of Scotland Group, while retailers and airlines fell on concerns the severe winter weather will hurt business.

The FTSE 100 advanced 0.5% to 5,901.26 in afternoon trading. The index gained 1% last week.

One of the top gainers in the benchmark was Royal Bank of Scotland (RBS) , shares of which rose 2.5%. The Wall Street Journal reported that RBS is in discussions with U.K. Financial Investments Ltd. to permit the bank to pay cash bonuses to staff this year.

Shares of Petrofac Ltd. , the oil and gas facilities service provider, advanced 2.3%, extending gains from Friday when it issued an upbeat trading update. Petrofac expects order intake for the year to be around $4.4 billion, resulting in a year-end backlog position of $8.4 billion -- figures that exclude the potential award of the South Yoloten project in Turkmenistan.

Utilities also gained, with shares of Severn Trent PLC gaining 1.6% and National Grid PLC moving up 1.7%.

In the beverage sector, shares of Diageo PLC gained 1.3% after UniCredit Bank upgraded the stock to buy from hold. The broker also raised its recommendation on Diageo rival Pernod Ricard to hold from sell.

"Our preference ... is to be buyers of Diageo where we believe the valuation is more attractive and the risks to growth significantly lower," UniCredit wrote in a note to clients.

Weather disrupts flights, shopping

Frigid weather in Britain and Europe disrupted hundreds of flights over the weekend. Shares of British Airways PLC slipped 1%, paring earlier losses.

In a statement, the airline said that "severe weather continues to cause significant disruption to our operation." Heathrow Airport, one of the busiest in the world, currently has only one of its two runways operational, and many parts of the airfield remain unusable, British Airways said.

Shares of low-cost airline easyJet PLC also gave ground, down 1.5%.

Retailers posted losses as well, on concerns that the weather may have prevented people from shopping during what was supposed to be a very busy weekend.

Seen as particularly susceptible, shares of HMV Group PLC slumped 8%. The company sells music, video, electronic games and books,

Next PLC dropped 0.4% and Marks & Spencer Group PLC fell 0.5%.

Outside the top index, shares of online gaming firm 888 Holdings PLC rallied 18% after Ladbrokes PLC said it's in very preliminary discussions with 888 about a possible deal.

In a statement, 888 Holdings said "there can be no certainty that these discussions will result in a formal offer being made for the company."

Meanwhile, shares of fund manager Gartmore Group Ltd. tumbled more than 9% after saying late Friday it's in talks with Henderson Group PLC about a conditional offer by Henderson to acquire the entire share capital of the company.

"These negotiations are on the basis of a proposal at a slight discount to the Gartmore share price at the close of trading" on Dec. 16, Gartmore said.

Henderson confirmed the talks on Monday but said that no terms have been agreed on yet. Shares of Henderson rose 1.1% in London.

Asset-management firm Schroders PLC rose 2.6%, helping lift the FTSE 100 index.

Shares of Songbird Estates PLC rallied 2.6% after it said that J.P. Morgan Chase & Co. (JPM) has acquired 25 Bank Street in Canary Wharf for 495 million pounds (around $770 million) from Canary Wharf Group PLC, the main operating subsidiary of Songbird.

The building will become the new European headquarters of J.P. Morgan's investment bank in 2012.