Market Report: Corus surges on rumours of Russian merger

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The Independent Online

Few investors would have put money on Corus being among the best-performing stocks in the large-cap index at the start of the year, but anyone brave enough to put money into the company in January will be well pleased with returns.

Corus has gained more than 50 per cent since the start of the year and topped the FTSE 100 list of gainers yesterday, adding 9.5p to close at 94p, a rise of 11.2 per cent. Rumours swept the market that the company is about to merge with Evraz, a Russian steel group, as UBS pointed out that the company has attributes that make it an attractive acquisition target. The Swiss broker increased its price target on Corus to 105p from 85p.

The €20bn (£14bn) bid for the French steel group Arcelor from Mittal Steel has put the sector in focus and Corus has been touted as a potential target for the German steel group ThyssenKrupp. One trader said: "Even if a bid doesn't happen there is plenty of room for upside in the steel price. The grim days of only a couple of years ago, when the shares traded down to 4.5p, seem like a lifetime ago now."

Elsewhere on the rumour mill came news of a possible bid for Cable & Wireless from Vodafone. C&W surged 6.75p on the rumours to 112.75p, but most analysts were sceptical to say the least. One said: "Arun Sarin has just bought himself some breathing space by selling the Japanese operations; it would be madness to jeopardise that by buying a struggling fixed-line operation that has no logical fit into Vodafone's business." Many traders remain convinced that if a bid comes for C&W it will be from a private-equity source. Vodafone also ended the session in positive territory, 1.75p better at 129.25p.

The rumour sparked buying in other, second-line telecoms stocks, as Colt Telecom added 4p to 74p and Thus firmed a penny and a half to 159.75p.

For the first time in three sessions, the FTSE 100 failed to hit the 6,000 mark, as traders continued to fret about a more prolonged slowdown after the stellar start to the year. The London market was weak all day, hitting a low of 5956.7 before closing flat at 5991.3, down 0.4 points.

Weakness across the commodities stocks was largely responsible for the fall, as BP eased 3.5p to 654p and Shell lost 13p to 1,809p. Miners were also weak, as Rio Tinto fell 29p to 2,711p, Xstrata traded 38p lower at 1,762p and BHP Billiton was 14.5p worse at 962p.

Leading the large-cap fallers was British Energy, 16.5p weaker at 632.5p, as news spread that the influential US hedge fund investor Brian Stark is selling down his 8 per cent holding in the company.

Aviva, the insurance group bidding to take control of its largest UK rival Prudential, was also unloved as investors worried about it breaking the bank to try to win Prudential. The stakes are high, with potential interest in Prudential coming in the form of AIG, the US insurer, and the French group AXA, both of whom could potentially scupper Aviva's chances of consolidating the UK industry. Aviva fell 18.5p to close at 830p, a fall of 2.2 per cent. Prudential shareholders took some profits to send the stock 2p lower to 741.5p.

Despite reporting a 33 per cent decline in full-year pre-tax profits and an uninspiring outlook for the rest of 2006, the home improvement retailer Kingfisher was well bid as investors continued to speculate that poor sales will tempt a bidder out of the woodwork. The shares added 5p to close at 248p, a high for the year.

Derwent Valley was the worst performer in the mid caps, falling 105p to 1,633p as analysts and traders greeted the property investment and development company's full-year numbers with little enthusiasm. The heavyweight US broker JP Morgan noted that the 30 per cent premium to net asset value makes the stock an expensive player in the property sector.

In the small caps the AIM-listed Golden Prospects climbed 1.75p to 59p as traders speculated that it is poised to announce an initial public offering of one if its mineral investments, a move which could lead to substantial upgrades for the stock. The company, which recently reported a more than doubling of full-year pre-tax profits, owns a number of stakes in mining operations as well as the finance house Ambrian.

A IM continues to cast its net far and wide, and yesterday's new listings added to the cosmopolitan mix on London's secondary market. Kalahari Minerals, a copper and uranium miner based in Namibia, raised £6m by placing 40 million shares at 15p. The shares closed at 18p, a 20 per cent premium. The Ottawa-based broadband management provider Sandvine Corporation raised £20m through a placing priced at 75p a share, and closed its first day of trading at 100.5p, a 34 per cent premium.