Market Report: EasyJet flies high on talk of Icelandic takeover

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The move is an attempt to cash in on the fastest-growing part of Europe's flight sector. It pushed easyJet 13.75p higher to 282.75p. There have long been suspicions in the City that FL Group's ultimate aim is to takeover the airline. Analysts believe its latest acquisition makes the purchase of easyJet more important for the Icelanders. The tie-up with the Copenhagen-based Sterling adds 46 destinations to Icelandair's 22. It leaves the combined entity with the same number of aircraft as Germany's Air Berlin but well behind easyJet and Ryanair, the industry leaders.

FL Group will have a tough time winning easyJet. First it has to convince Stelios Haji-Ioannou, who owns 40 per cent of the group. He is unlikely to want to sell at anywhere near the current share price because the airline is the flagship business in his still-developing easy empire. Second, easyJet's articles of association and EU law make it difficult for a non-European Union entity to buy the company. Given that Iceland is not a member of the EU, FL Group will have problems executing such a deal.

Elsewhere, dealers reported nervous trading in Carpetright, which traded between 875p and 895p, before today's update from the retailer. Numis Securities expects the carpets retailer, which closed 15p higher at 895p, to announce a 6 per cent drop in first-half like-for-like sales. The broker said: "The household goods sector as a whole remains a very difficult market and we would not expect the carpet market to have bucked this trend."

Numis pointed out that just two weeks ago Victoria, the listed carpet maker, issued a profits warning and cited a downturn in trading during August and September for causing the setback. It expects Carpetright to outperform its peers because it is the No 1 carpet retailer in the UK but warns that it is not immune from the current market conditions.

Peacock jumped 11.25p to 324p as two sizeable lines of stock, worth more than £20m in total, crossed the market at 324p. The trades immediately sparked talk that Richard Kirk, the chief executive of the discount retailer, will soon formally unveil his 340.5p-a-share buyout, which would value the company at £400m. Mr Kirk admitted he was considering a buyout a month ago. Since then it has emerged that his offer is to be backed by two hedge funds - Och-Ziff and Perry Capital. The duo, which helped finance Malcolm Glazer's takeover of Manchester United, are believed to have been studying Peacock's books for several weeks.

London Stock Exchange rallied 28p to 562p on reports that Australia's Macquarie Bank is close to securing the bank financing required for a possible bid for the bourse. Macquarie admitted being interested in buying the LSE in August and since then has been trying to form a consortium to help it share the financial burden of such a deal.

Aegis ticked 0.25p higher to 125.25p as Vincent Bolloré raised his stake in the media group to 20.2 per cent. In the past three weeks, the French financier has more than doubled his shareholding.

The FTSE 100 rallied strongly, gaining 65.5 points to 5,207.6. Dealers said that investors had been buoyed by falling oil prices and a belief that, fundamentally, equities offer good value when compared with the alternative, bonds. Tom Hougaard, the chief strategist at the financial spread-betting firm City Index, pointed out that the period from November to May is usually the strongest by far for stocks.

Corus put on 1.25p to 47p as Goldman Sachs suggested upcoming contract negotiations will lead to rising prices for steel producers. Bodycote rose 6.5p to 211.75p after Morgan Stanley moved its clients into the group. Naming the company as its favourite in the engineering sector, the US broker said: "Against its peers, Bodycote has consistently scored in the top quartile in terms of quality, technical expertise, delivery and customer service."

Among the small-caps, Aminex rose 2.5p to 23.25p after Rickerbys Limited, the nominee company for a group of private investors, raised it stake in the Irish oil explorer to 4.9 per cent. Rickerbys first emerged with a stake in Aminex during the summer.

Dealers also reported stake-building in European Business Jets, up 0.12p to 1.62p. One buyer picked up 11.25 million shares, or a 5 per cent stake in the corporate jet operator, at 1.5p.