Market Report: Broker note sparks surge at Scottish Power

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The excitement was caused by Dresdner Kleinwort Wasserstein. In a note to its clients, the broker said: "We believe E.ON could afford to bid up to 650p a share for Scottish Power and still meet its acquisition criteria." It believes such a deal is simply too good an opportunity for the German group to miss and took the view that a tie-up "now seems more likely than not".

The problem E.ON faces is that it wants to grow, primarily in Europe, but there is a distinct shortage of businesses it can buy. The purchase of Scottish Power would certainly satisfy its ambitions and even at a bid price of 650p a share a deal makes sense for E.ON, according to Dresdner's calculations. Therefore the broker upgraded its recommendation on Scottish Power to "add" from "hold".

On the off chance a deal does not go through, Dresdner argues that shares in the UK group will not fall far given the strong earnings growth at the company. It suggests the worse the stock will fall to is 525p, which greatly limits the downside for those looking to gain exposure to Scottish Power equity now.

Elsewhere, Carnival added 82p to 2,914p as sector analysts argued that the market has become too obsessed with the impact of rising fuel costs on the cruise ship operator. They pointed out that the likes of Carnival are much less exposed to the crude price than many airlines. Meanwhile, the oil price itself lost ground, sending BG Group 0.75p lower to 517.5p, Royal Dutch 4p weaker to 1,761p, Premier Oil off 12.5p to 785p and Paladin Resources down 2.5p to 301.75p. Numis Securities voiced concerns that the crude price could be heading for further falls. "Looking forward, we do not expect Opec to do anything that will influence markets next week. Further weakness in oil prices would be unhelpful for the sector which, in general, does not look cheap to us," the broker said. In the short term, Numis expects to see some investors lock in the profits they have made in oil shares.

Kingfisher ticked 0.75p lower to 245p as Deutsche Bank downgraded its profit forecasts on the DIY retailer before Thursday's first-half results. The German broker cut its profit estimate for the current year to £545m, from £595m previously, and warned that Kingfisher's interims could reveal a drop in earnings of 23 per cent to £260m.

Talk that a wave of consolidation could be about to break out in the software sector pushed Sage 3.25p better to 238.25p. The speculation seems to have been sparked by Oracle's takeover offer for Siebel Systems in the US. Elsewhere in the sector, Surfcontrol put on 1p to 455p as Pat Sueltz, an executive director at the software group, bought 15,000 shares at 441p.

Yule Catto put on 6p to 250p after Citigroup became the second major broker in as many sessions to upgrade its rating on the chemicals company to "buy".

Hopes that Antofagasta could soon be on the receiving end of a takeover helped shares in the mining group add 12p to 1,460p and buck a downgrade by Dresdner Kleinwort Wasserstein. After months of strong gains, the broker believes that Antofagasta stock is now approaching fair value. However, investors were more excited by the prospect of the company being bought by a mining sector giant such as Xstrata or Anglo American.

Celtic Resources continued its slide, falling 17p to 207p, as investors worried that the mining group could lose the battle for control of Russia's Nezhdaninskoye goldmine. As it stands, Celtic Resources owns 50 per cent of the mine but for over a year has been trying, along with its partner Barrick Gold, to acquire the other half of the company from the local mining giant IG Alrosa. However, according to reports coming out of Moscow, Norilsk Nickel, the Russian metals giant owned by the oligarch Vladimir Potanin, is trying to trump Celtic's offer and win the gold mine from under the AIM-listed group's nose.

There have also been reports that Celtic in fact only owns 20 per cent of Nezhdaninskoye, with the remainder controlled by a series of Caribbean companies. Celtic strongly denies this, while sources close to the group insist that IG Alrosa has dismissed any suggestion it would sell its stake to Norilsk.

Even without the Russian gold mine, analysts believe Celtic shares are greatly undervalued at present. They calculate the company's existing assets are worth at least 300p a share. Among those buying into Celtic yesterday was the famous stock market operator Simon Cawkwell, aka Evil Knievel.