Market Report: 'European interest' is providential for Friends

Takeover activity among the insurers has been simmering all summer, and Friends Provident is the latest to reach boiling point after further manoeuvring this week.

The group, which lost its recommended status for a potential merger with Resolution on Friday, is rumoured to be back in play with interest from continental Europe. Yesterday marked the re-emergence of speculation surrounding the French insurer Axa, which has been surprisingly quiet. There was also talk of further interest from Zurich Financial Services. Friends' shares rose 1.68 per cent as a result to 182p.

Late in the day, Scottish & Newcastle was fizzing, up 1.91 per cent to 773.5p. Traders were toasting talk of an 850p-per-share counter-bid from an unnamed suitor to rival the 720p-per-share offer made by Carlsberg and Heineken last week.

The asset managers were also in high spirits, with Schroders storming to the top of the leaderboard after a bullish third-quarter trading update. The group reported a 53 per cent rise in pre-tax profits to £98.1m, which beat analyst expectations. The stock closed up 4.81 per cent at 1,547p. The news gave a decent push to its blue-chip rivals, with Man Group up 2.77 per cent at 576p.

The housebuilders rebounded after the previous day's sell-off, although it had some observers scratching their heads. "I'm not sure they were that oversold on Monday, especially as there are concerns over Taylor Wimpey's update on Wednesday," one said. The best performer was Barratt Developments, up 2.85 per cent at 649p.

The FTSE 100 retreated 47 points to 6,659. It was held back by the miners, which were hit by profit-taking after the previous day's rises. Vedanta Resources was the lowest on talk it was guiding lower on trading. It weakened 4.3 per cent to 2,134p, although a Vedanta spokesman denied the claims.

One analyst said: "There was a real lack of significant newsflow driving the market and it was hardly surprising to see it down after the recent bounce." One trader said the market was cautious as it waited on whether the Federal Open Market Committee will cuts US interest rates at its meeting today.

Confidence waned in Tate & Lyle once more, in anticipation of today's interims. The sugar producer was smashed last month as it warned on profits. Despite attempts to rally, it was off again yesterday, down 1.87 per cent to 433p, on fears of further issues.

Investors in Imperial Tobacco were wheezing in the morning after it admitted its takeover of Altadis would take longer than expected. It said the deal would probably not complete until early next year, and added that smoking volumes had fallen more than expected in England after the introduction of the smoking ban. While full year pre-tax profits rose 6 per cent, Dresdner Kleinwort said that there were "no positive surprises from the results". After falling 61p, it rallied to close in positive territory, up 4p at 2,447p.

Elsewhere in the sector, BAT was down as Goldman Sachs cut its rating from "buy" to "neutral", citing recent gains. It sent BAT down 15p to 1,801p. The group is set to release its third-quarter results tomorrow. Ryan Kneale, market analyst at BetsForTraders.com, said the savvy clients were going short in anticipation.

Rumours of a placing in Intercontinental Hotels did the rounds at lunchtime, sending the stock down 18p to 1,092p.

The defence group Chemring topped the FTSE 250. It continued to rally after the explosion at its munitions factory near Rome earlier this month. It closed up 5.3 per cent at 2,145p.

At the other end, Bodycote slumped 4.85 per cent to 294.25p as hopes of a renewed bid from Swiss rival Sulzer receded.

Another faller was Sports Direct International. A regulatory statement confirmed it had built its stake in Umbro to 29.9 per cent, supposedly to block a bid from Nike. It fell 4.58 per cent to 135.5p. There was talk late in the day that JJB was also set to increase its holding in Umbro. The England kit maker rose 3.5p to 193.5p on hopes of a higher bid.

The AIM-listed Clinical Computing surged 26.3 per cent to 3p. This followed news of its plan to raise £1.8m via a share placement. The funding will be used to accelerate delivery of new products.

The tiddler Petards Group, which develops surveillance systems, was up 8.24 per cent at 0.46p as it won a second contract in a week from the Ministry of Defence. The chaff and flare dispensing equipment contracts are worth more than £2m.

One of the worst small-cap performers was Humberts. The estate agent warned on full-year profits, over losses in September sparked by the Northern Rock crisis. It shed 17.89 per cent to 39p.