Home Depot bid rumours send Kingfisher soaring

Rumours of a bid for Kingfisher from Home Depot, its US rival, are not new but they were back in a big way yesterday. Kingfisher jumped 5.75p to 281.5p on the talk and analysts were quick to argue that a link-up would certainly make good strategic sense for the US group. Since the demerger of Kesa Electricals this summer, Kingfisher has become a focused DIY retailer through its B&Q operations.

B&Q is Europe's biggest DIY retailer and recently made a foray into China. According to retail analysts, if Home Depot were to decide to expand into Europe the acquisition of Kingfisher would be top of its list. The American group certainly has the resources to pull off such a coup. It boasts £3bn of cash on its balance sheet and has seen its shares put in a strong performance this year so it is perfectly placed to offer Kingfisher shareholders a mixture of cash and shares.

Some in the market even suggested that a bidding war could break out for Kingfisher. According to this theory, should Home Depot make a move on Kingfisher, fellow US DIY giant Lowe's would also throw its hat in the ring. Lowe's has made no secret of its international ambitions but would find it harder than Home Depot to complete a deal, given its more modest financial firepower. Analysts reckon it would have to borrow a significant sum of money in order to win Kingfisher.

Meanwhile, the wider market roared higher. The FTSE 100 index closed above the psychologically important 4,400 level, up 67.4 points at 4,410.0, as stocks on Wall Street soared following forecast-busting US manufacturing data. The figures provided yet more evidence that the world's largest economy is recovering strongly and prompted heavy demand for cyclical stocks. Hence, Rio Tinto jumped 56p to 1,445p, Wolseley gained 22.5p to 767p, Reuters added 7p to 252.5p and 3i Group put on 15.75p to 624.75p.

Such sentiment also supported ARM Holdings, which ended the day 11.5p higher at 131.5p. The semiconductor designer is without doubt sensitive to the economic cycle, but some traders suggested that something altogether more exciting could be in store for shareholders. They reported talk that Intel, the US semiconductor giant, was mulling a bid for ARM. Volume in ARM shares topped normal levels with more than 46 million changing hands.

Lloyds TSB was 5p higher at 416p amid vague talk that it may sell its Scottish Widows unit. Elsewhere in the sector, Abbey National gained 7.5p to 541.25p, Royal Bank of Scotland jumped 25p to 1,648p and HBOS was 9.5p higher at 739.5p.

Kelda shares, up just 0.25p at 451p, were held back by a downgrade from Citigroup Smith Barney. The US broker cut its rating to "hold" from "buy" on valuation ahead of first-half results from the utility on Thursday. Citigroup expects an 8 per cent rise in interim pre-tax profit at Kelda to £101m.

British Airways lost 2.75p to 225.75p on fears that its Heathrow airport London hub may fail to win government backing for a third runway to ease congestion.

Derwent Valley, the central London property developer, rose 35p to 783p after it rejected a third bid approach from property tycoon Leo Noe. The latest bid from Mr Noe's company Winten was pitched at 800p and valued Derwent at £436m. However, the group's management team dismissed the offer as being too low.

Another property player, Helical Bar, put on 5p to 757.5p despite a downgraded by UBS. The Swiss broker cut its rating to "reduce" from "neutral" and told its clients: "We believe that market conditions remain tough for a developer as demand for offices remains low and existing supply is already high."

Tullow Oil went 3.5p higher to 85.5p after announcing the sale of its remaining onshore oil and gas production assets in Britain for $8.5m. Investec Securities noted that Tullow shares trade at a 20 per cent discount to the group's net asset value and urged investors to buy into the oil and gas explorer.

Things seem to be looking up at Sportingbet, 2p higher at 38p. Last week it unveiled a deal which will take its gaming services to interactive TV platforms and yesterday the group announced that Nigel Payne, its chief executive, has been buying stock. Mr Payne disclosed the purchase of 30,000 shares at 33p.

There was also director share buying at Oystertec. Shares in the pipe maker ticked 0.25p higher to 15.25p as Angus Monro, the group's chairman, disclosed the purchase of 330,000 shares at 15p while Colin Cooke, a non-executive director, picked up a more modest 130,000 shares at 15.25p. Oystertec's recent trading statement boasted that the group's full-year figures would come in well ahead of expectations.

ICM Computer put on 5p to 247.5p after it unveiled the acquisition of ITM Support in a £3.5m deal. The acquisition will become earnings enhancing for ICM next year.

Mayflower put on 1p to 32.5p on talk that the group's energy division is performing ahead of schedule.

Belhaven Group gained 9p to 422.5p after the Scottish brewer posted betting-than-expected first half figures. Several brokers are believed to have upgraded their full- year estimates for Belhaven after the numbers were published.