LONDON Stock Exchange said it will more than double the cash it plans to return to shareholders to £510m as it defends itself from a bid by Australia's Macquarie Bank.

The London exchange, the subject of a long-running takeover saga, asked shareholders once again to reject the £1.5bn offer from Macquarie Bank, saying it failed to take into account strong trading performance.

"The London Stock Exc-hange has a unique strategic position and an exceptional customer franchise," chairman Chris Gibson-Smith said on Friday. "Macquarie's offer recognises none of this. It provides no value today and reflects no value tomorrow."

Macquarie now has until Sunday, February 26, to raise its 580-pence-a-share offer.

A Macquarie spokesman declined to comment on a possible higher bid, but said the LSE's plans to return more cash changed nothing.

"There is nothing in the LSE document to cause MLX (Macquarie's bid vehicle) to change its view that the LSE is a fundamentally low growth business which has suffered from poor cost control."

By lunchtime on Friday, LSE shares were up 5.8 per cent at 805 pence, having earlier risen to an all-time-high at 806 pence - valuing the exchange at more than £2bn. It said it would buy back up to £50m of its shares each year after returning the cash to shareholders.

to shareholders.

It will also raise the total full-year dividend by 71 percent to 12 pence, the LSE said in a statement.

A source familiar with the situation said Macquarie plans to talk to LSE shareholders over the coming days before deciding whether to go ahead with a raised offer.

The bank is likely to make an announcement by the middle of next week, the source added.

CAPITAL EFFICIENCY

The increases are part of the London exchange's programme of making its balance sheet more efficient, Jonathan Howell, the LSE's finance director, told journalists on a conference call.

"We are now at the leading edge of good capital management in the sector," he said.

Returning cash to shareholders is a trend in the exchange industry. Major rivals Euronext (ENXT.PA: Quote, Profile, Research) and Deutsche Boerse (DB1Gn.DE: Quote, Profile, Research), both of which have approached the LSE with merger plans, have already paid back cash to shareholders following demands from activist hedge funds, such as U.S. firm Atticus.

Euronext declined to comment on the LSE's defence document.

But Johannes Thormann, an analyst at WestLB, said he is concerned that the LSE is gearing up again, saying the company's forecasts for growth in its electronic order book, SETS, were too optimistic.

The LSE said it expects the average number of trades per day expected to grow by at least 100 percent by the 2008 financial year.

The strong performance will continue to be driven by the rise of hedge funds, the popularity of contracts for difference

(CFDs) and the increasing shift to algorithmic trading, a sophisticated electronic method of trading shares by breaking large orders into smaller chunks according to pre-set parameters, the exchange said.

"This all fuels growth on SETS," Clara Furse, LSE chief executive, told the conference call.