Market Report: Focus on Target as bid rumours lift Sainsbury's

Sainsbury's was back on traders' radar screens yesterday as takeover speculation again surrounded the struggling supermarket giant. The excitement pushed shares in Sainsbury's to the top of the FTSE 100 leaderboard, up 13p to 271p, on volume of 49 million. An average day's trading rarely sees volume top the 12 million mark.

Sainsbury's was back on traders' radar screens yesterday as takeover speculation again surrounded the struggling supermarket giant. The excitement pushed shares in Sainsbury's to the top of the FTSE 100 leaderboard, up 13p to 271p, on volume of 49 million. An average day's trading rarely sees volume top the 12 million mark.

In terms of who might be interested in buying Sainsbury's, dealers pretty much pointed to the usual suspects. Private equity seemed to be top of the list, with most taking the view that any bid by a financial consortium is likely to include the US buyout giant Kohlberg Kravis Roberts & Co. And, of course, Philip Green's name was bandied around the Square Mile as a possible predator after he failed to take control of Marks & Spencer earlier this summer. He denied the speculation outright, dismissing it as rubbish.

One relatively new name to emerge on the list of potential bidders for the food retailer was Target, a US retailing giant. The group is said to have a massive cash pile and has long been talked of as eager to buy assets in the UK. Target has also been rumoured as a possible bidder for Matalan. But analysts who follow the US group closely were far from convinced by the story and pointed to recent comments from its management which hinted the retailer has plenty of uses for its spare cash in the US for the time being.

Key to Sainsbury's future is the stance of the retailer's founding family. Its holds a 35 per cent stake via a trust and is said to be keen to give Justin King, the group's new chief executive, a chance to turn around the group's fortunes. In business, of course, everyone has a price and a good offer could help persuade them to part with their birthright.

Elsewhere in the sector, Wm Morrison jumped 4.25p to 185.75p, buoyed by upbeat comments from Citigroup Smith Barney. The US broker urged its clients to buy into the group and set a 260p price target. Citigroup believes that Morrison has already raised £500m from the store disposal programme forced on it by the Office of Fair Trading. This figure is pretty impressive as the retailer is just half way through the programme with a further 25 sites yet to be sold. Meanwhile, Tesco added 2p to 265.5p, Somerfield rose 2.5p to 144.5p and Big Food Group firmed 2p to 84.25p.

BAE Systems rose a further 2.25p to 207.25p after yet another broker upgrade before its interim results next week. Deutsche Bank raised its price target to 250p from 235p and tipped the figures to impress. The wider FTSE 100 closed 17 points better at 4,518.6 as a strong performance by the banking sector boosted the blue-chip index. Royal Bank of Scotland added 18p to 1,589p, HBOS rose 5.5p to 691p, Lloyds TSB improved 3p to 427p and Northern Rock firmed 7p to 721p. Barclays dropped 0.25p to 520.5p amid talk that the bank is considering an overseas acquisition.

Spirent was 2.75p better at 56p thanks to JP Morgan, which started coverage of the telecom testing equipment specialist with an "overweight" stance. In a note to investors, it argued the group's core testing business is well placed to benefit from strengthening demand and renewed interest in next-generation technologies. "With a new chief executive, a cleaned up balance sheet and reduced currency headwinds, prospects at Spirent are improving," JP Morgan said.

News that Countryside Properties, 70.75p higher at 265.25p, has received a bid approach set the housebuilding sector alight. Bellway gained 37.5p to 790p, Bovis Homes improved 18p to 570p, Redrow jumped 10p to 370p and Westbury was 12.5p higher at 440p. Countryside stressed that the bid from Alan Cherry, its chairman, was a preliminary offer. while market gossips suggested he will have to bid 285p a share or higher if he is to win control of the company.

Regal Petroleum was in demand after a visit by several institutional fund managers to the company. On the whole, the money managers are believed to have come away impressed by what they saw. Shares in the oil explorer finished the day 6.5p better at 372.5p. The most recent speculation to surround Regal has suggested that a reserves upgrade is on the way at its Kallirachi oil field in Greece.

Senior was steady at 38.5p despite talk of a pick up in orders at its aerospace division, while Proteome Science improved 8.5p to 82p on whispers that a positive note about the biotech from a major brokerage is on the way. ML Laboratories was 0.5p better at 17.25p after unveiling a marketing agreement in Japan for its Clickhaler product.

Frontier Mining made its debut on AIM and closed at 16.5p after Numis Securities raised £3.5m for the group at 15p. Heavyweight institutional investors, including RAB Capital and Framlington, are said to have bought into the IPO. Frontier is focused on developing gold and copper deposits in Kazakhstan and is led by Brian Savage, a man with 20 years of mining industry experience.