Market Report: Centrica flares higher on hopes of an approach

On a day when the announcement of a mega merger propped up the entire market, there was little room for further takeover speculation. Yet, by the end of the day traders had a slight diversion from BHP Billiton's bid for Rio Tinto and were talking about speculative interest in British Gas's owner, Centrica.

The UK gas company has been consistently rumoured to be a target for the Russian giant Gazprom, although in June talk emerged that a handful of European oil and gas majors were considering bids for the asset. The stock, which has gone quiet of late, strengthened 1.41 per cent on the news of a potential bidder to close at 360.5p.

It was a topsy-turvy day, but there was no doubting the story moving the market was the offer for Rio Tinto. Yes, the bid chat finally turned out to be true, and the official announcement sent Rio soaring 32 per cent to record levels. Despite Rio's rejection, investors piled in, banking on speculation that BHP Billiton would sweeten its $140bn (£66bn) bid. Rio weakened slightly towards the end of the day, closing up 21.75 per cent at 5296p. BHP ended the worst performer, 100p down at 1,656p.

The FTSE 100 had nosedived 94.8 points in the morning, taking its lead from New York's performance overnight, on poor performance from the financials and weakening confidence.

The financials had a bad day in the UK as well. Barclays and Royal Bank of Scotland were the worst in the sector, as rumours of a potential write down continued to swirl round them. RBS fell to 415p, 40 per cent lower than its 719.5p peak in March. Barclays sunk below the £5 share mark at the close for the first time in three years. It ended down 5.36 per cent at 486p.

Investors were disconnecting from BT Group after it admitted a fall in second-quarter profits. Pre-tax profits fell from £665m to £660m and the telecoms group was hit by a £167m charge on its restructuring drive. The stock shed 4.21 per cent to 301.75p.

The top tier was saved by Rio. The positive sentiment around the miners hauled the blue chips back into positive territory, adding about 70 points on to the index. Although the FTSE 100 finished the day down 3.2 points at 6,381.9, the damage could have been so much worse.

An early riser was Mitchells & Butlers, which enjoyed a welcome respite after a torrid week. The pub and restaurant group gained 3.28 per cent to 630p as talk of stakebuilding by the Irish tycoons JP McManus and John Magnier did the rounds. Reports of their involvement in Mitchells first emerged last week.

The news provided a welcome fillip for the sector, with Punch Taverns the pick, up 2.82 per cent to 928.5p. This followed renewed takeover speculation in the sector this week.

Carphone Warehouse ticked up 1.25p to 357p on solid first-half results. The group said earnings before interest, tax, depreciation and amortisation rose from £83.2m to £161.9m and added that it was to step up its expansion plans in the US. It intends to open 1,000 stores in the country within two years through its joint venture with Best Buy.

Soaraway leader on the mid tier was the investment bank Close Brothers, up 20.59 per cent to 916.5p. Traders were licking their lips over a prospective bidding war for the group as Close rejected a £1.4bn bid from Cenkos Securities and Landsbanki.

Also up was Dairy Crest after its interims were well received. The dairy company, which owns the Clover butter brand, rose 4.88 per cent to 590.5p as it posted a 21 per cent rise in profits.

Highest faller on the mid tier was Mapeley, which shed 13 per cent to close at 1,620p after falling to a pre-tax loss in the first nine months of the year. The property investment group was hit by non-cash revaluation losses.

Results also did for Invensys, which tumbled 12.19 per cent to close at 294.75p after it missed consensus estimates with its second-quarter results. The industrial automation, transportation and controls group posted "clean" pre-tax profits of £42m, while the consensus figure was £52.7m. Landsbanki said there was some good news in the statement, but "on the back of volatile and unforgiving equity markets we expect the shares to suffer today".

Top of the small caps was Tersus Energy, which confirmed it was in takeover talks with an unnamed third party. The stock, which has nosedived since a 51p peak in February 2006, has rallied in November, and closed up 53 per cent to 4.4p yesterday. Also up was Angel Biotechnology Holdings, after it extended a contract with ReNeuron Group, a stem cell therapy group. The group climbed almost a fifth to 0.155p.

At the bottom, silicon wafer reclaim services group Pure Wafer shed 53 per cent of its value to close at 76p. The falls were brought on by a disappointing trading update, as the company expects 2008 profits to be significantly lower than market expectations.