Market Report: Barclays buoyed by Bank of America bid talk

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It was always bound to happen. Just as Barclays' attempt to buy ABN Amro crumbled, the UK group supposedly became a target itself. The offer for ABN lapsed yesterday, and the rumour mills duly ground into action. The old rumour of Bank of America coming in with a 750p-per-share bid was dusted off, although one trader was doubtful. "That has been around a while, and they would never get it at that price. I'm sure it would have to be over 1,000p to stand a chance," he said. The stock rose 15p to 655p.

The financial sector was in focus again as Northern Rock recorded its second day of gains. The beleaguered Newcastle lender soared 13.31 per cent after reports a four-way fight could break out for control. It was unable to maintain the rally, but still closed top of the leaderboard, up 6.52 per cent at 161.7p.

The market was strong for much of the day, with the FTSE 100 rising 58.1 as investors backed the Bank of England's decision to maintain interest rates at 5.75 per cent. However, it weakened towards the end of the day, closing 12.7 higher at 6,547.9.

Reports that the private equity group 3i had approached Abbot Group sent both stocks storming up the risers. 3i was up 3.3 per cent to 1,064p on reports it had made a 375p-per-share indicative offer for the oil services group. Abbot has been the focus of merger speculation for some time, and the news sent it to the top of the FTSE 250 risers, up 21.85 per cent at 355.5p.

Some welcome backing for BP lifted the stock 5p to 562p. Exane BNP Paribas lifted its forecasts for oil prices over the next three years, upping BP's rating to "outperform" as a result. It added that the upgrade was also supported by "its potential as a recovery/restructuring story and operational catalysts". The shares have been under pressure since rumours it was to issue a profits warning for the third quarter.

The worst performer in the morning was Icap as investors locked in profits following a first-half trading statement. The interdealer broker said first-half profits were expected to be at the upper end of analysts' forecasts – between £289m and £305m – driven by volatility in the markets. Merrill Lynch said problems among the investment banks could hold back Icap's growth in the short term. It lost 3.1 per cent at 516.5p.

The rally in Barratt Developments was cut short yesterday, after Panmure Gordon said the company faced continuing risks. The housebuilder fell 1.12 per cent to 798p, after Panmure said "Barratt will have a more difficult job managing the slowdown at the same time as integrating the Wilson Bowden business."

Beyond Abbot, another storming performance on the second string was Aveva Group after it posted a strong trading update. The software services company's trading update had investors piling in, sending the shares up 12.95 per cent to 1,090p. It said the first half was likely to show strong growth and expects full-year returns to be ahead of expectations.

Shares in Workspace Group soared after it said the investment group Trefick had notified it of a 21 per cent interest in the share capital through contracts for difference. The stock rose 32p, but weakened to close up 12p at 357p.

A solid full-year update and the appointment of a new chief executive boosted Southern Cross Healthcare Group 12p to 525p. Non-executive chairman Bill Colvin will become the chief executive in January.

The iron ore group Ferrexpo suffered after Deutsche Bank initiated coverage of the stock with a "hold" rating and a 240p target price. The Ukrainian group weakened 6p to close at 251p as the broker pointed out a tightening in the iron ore market.

The top AIM stock was Verona Pharma, which more than doubled to 6.25p after a step forwards in its anti-asthma and hay fever treatment. Its anti-asthma compound, which does not involve steroids, is undergoing a safety study before moving on to clinical trials next year.

The market backed River Diamonds after it said it plans to spend £1.75m upping its stake, through an indirect investment, in Fiji's Emperor gold mine. There has been healthy volume in the stock all week, with some 250 million shares placed on Wednesday. It closed up 28 per cent at 1.8p.

Share buying from chairman Stephen Koo sent UniVision Engineering up 26.32 per cent to 3p. Koo now owns a 21.04 per cent stake in the security systems group after he bought 725,000 shares at 2.3p.

The worst performer among the growth stocks was the IT company Infoserve Group, which sunk after admitting revenue growth was lower than expectations. The news it had started a strategic cost review to "bring overheads more in line with revenues" and move towards monthly operating profitability in the next financial year sent the stock spiralling 21.92 per cent to 28.5p.

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