Market Report: Lonmin lifted by a second takeover rumour

It is rare for a Friday to go by without a big bid rumour in the market and yesterday was no exception. This time it was the mining group Lonmin, buoyed by an extremely bullish research note from broker Morgan Stanley and by talk that it is about to face its second takeover bid of the year.

Last time, in February, the bidder was thought to be South African group Goldfields. A bid from the same source now looks unlikely - Goldfields is busy bidding for local rival Western Areas as well as putting in place a big investment programme at its mines in Driefontein and Kloof. As such its free cash flow is now probably worse than it was back in February. Much more likely is a bid from UK rival Xstrata. It recently completed the acquisition of Falconbridge, a Canadian nickel group, but its chief executive, Mick Davis, has hinted that the company is looking at other deals.

Lonmin reports numbers on Wednesday; it is going to have to impress the City if Morgan Stanley's 4,200p target is not going to look wildly optimistic. Lonmin closed at 3,183p, up 94p, having been 311p better during the session. Xstrata fell 59p to 2,295p.

Most of the blue chips' losses were down to weaker mining stocks. Apart from Lonmin, miners were firmly in the red by the close. Seven of the top-10 fallers were mining stocks. Rio Tinto fell 82p to 2,880p, Antofagasta closed 26p lower at 494.75p and Kazakhmys shed 34p to 1,200p.

The Democrat victory in the US mid-term elections continues to weigh on pharmaceuticals investors concerned that any moves to reform the US medical system could lead to lower drug prices. AstraZeneca fell back through 3,000p for the first time since May, before some late buying saw the stock close at 3,010p, down 65p, while GlaxoSmithKline fell 26p to 1,360p, a 14-month low.

Concerns over interest rates, weak miners and pharmaceutical stocks sent the FTSE 100 down by 23.1 by the close.

Another round of bid chat helped the mid-cap oil exploration and production stocks, with Burren Energy, up 66.5p to 931.5p, the main beneficiary. It has been two weeks since Premier Oil confirmed that it is in offer talks, but far from losing heart over the chances of a deal traders are convinced that there could be several in the pipeline. Dana Petroleum was also in demand, 88p better at 1,357p, while Premier closed on 1,362p, 27p firmer.

Gerald Ronson finally made a bid for Crest Nicholson. At least that's what traders thought - until it turned out that the 585p per share offer was from West Coast Capital, led by Sir Tom Hunter, which bought Mr Ronson's 27 per cent stake before making the offer. The shares surged past the offer price to close at 617p, 45.5p better. Meanwhile, other second-tier house builders were also much stronger, with Berkeley Group 81p firmer at 1,594p and Redrow up 37p to 647p. All three companies are at all-time highs.

Abbot Group, the oil services provider, closed a penny worse at 334p but the word is that Schlumberger, the US engineering, oil services and IT group, is poised to offer 425p per share. Investors with long memories will remember Schlumberger for its acquisition of Anglo-French IT consultancy Sema Group in 2001. Given the timing of that acquisition, cynical investors might be forgiven for calling this as the top of the market for oil services too.

Investors who bought shares in defence contract group Qinetiq when it floated in February have had to hang on for a long time to see the shares approach anything like what they paid. The word in the market is that the Government could confirm a £10bn contract for military training centres by next week as the shares closed up 4.25p at 190.75p.

Mid-market disaster of the day was Whatman, the biotechnology group, as the company said that first-half earnings would fall short of market estimates, blaming an accounting error.

The earnings shortfall is expected to be £500,000, the 33p decline in yesterday's trade to a 252p close wiped more than £40m off the company's market value.

Empyrean Energy, in the small caps, followed up Thursday's good drilling results by telling investors it has found further gas indications at its Sugarloaf project in Texas. Solid buying support saw the shares rally another 17p to close at 77p.

Watchers of the biotechnology group Oxford Biomedica will be on the lookout for news over the weekend. One of its scientists is due to talk in Athens at which he is expected to give an update on Prosavin, the company's Parkinson's disease treatment. The stock closed 0.5p better at 31.25p.