Market Report: Merger chatter sends Northern Rock on a roll

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Yesterday it was the turn of Northern Rock, as investors piled into the stock on the back of rumours that the company is in talks to merge with the rival mortgage bank, Bradford & Bingley. Other traders, perhaps inevitably, said one of the major Spanish banks may be lining up a bid for the Newcastle-based bank. The shares reacted strongly, rising to a high of 1,207p before profit-taking led the stock to close at 1,150p, up 50.5p. Bradford & Bingley shares were also well bid, closing 12.75p higher at 461.5p, while the mortgage banking rival Alliance & Leicester also benefited, rising 19p to 1,099.5p.

However, if a bid does come, the non-executive director Sir George Russell will kick himself. In fact he is probably doing that already. In a regulatory announcement made shortly after the stock started rising, Northern Rock said Sir George and his wife sold 30,150 shares on Thursday at 1,095.5p. The announcement led dealers to say a bid is usually unlikely when directors are busy selling the stock.

It wasn't just the banks that were the centre of bid talk. After a long period of rising demand for commodities and strong prices in the metal markets, it was perhaps inevitable that a second-line player would receive a bid approach. Lonmin put speculators out of their misery by admitting it has been in talks that may lead to a bid for the company. Shares in Lonmin hit an mid-session high of 2,860p, a rise of 720p, before profit-taking knocked off some of the gloss. Its shares closed at 2,671p, a rise of 531p.

The news sent an already frothy sector into overdrive, with Anglo American, Rio Tinto, Xstrata, BHP Billiton, Antofagasta and Kazakhmys all rocketing. Anglo American led the way, its shares soaring to 2,145p, a rise of 123p which made it the best performer in the FTSE 100. Rio rose 55p to close at 2,867p, while Xstrata gained 56p to 1,701p.

BHP Billiton, viewed by most sector watchers as a likely buyer because of its £65bn market capitalisation, rallied 23p to 984p. Antofagasta and Kazakhmys are copper miners, but even they were able to cash in on the rally, with Antofagasta rising 80p to 2,115p and Kazakhmys climbing 28p to 892p.

The strong trading day for mining stocks made it a good session for the wider market, given the fact that the sector makes up a big chunk of the FTSE 100, which rallied 17.3 to 5846.2.

It has been a miserable 2006 so far for Rexam shareholders. The world's largest tin can manufacturer has seen its share price plunge from 526p to yesterday's opening of 484.5p, down 7.8 per cent against a market that has risen more than 3 per cent. The broker Oriel Securities published a bullish note on the company yesterday, saying the recent weakness is an excellent opportunity to pick up a core long-term holding at a good price. The company is due to report full-year results on Wednesday, and its shares climbed 14.5p to 499p.

Bucking the positive trend was Daily Mail & General Trust, whose shares plummeted after it said its Northcliffe regional newspaper subsidiary would now not be sold. Its shares closed at 652p, a fall of 93.5p. The local newspaper rival, Johnston Press, also suffered on the news, dropping 31p to 457p.

There was more bad news in the publishing sector as Haynes Publishing shocked the market with a profits warning. Its shares fell 47.5p to 325p. The company, which is behind the eponymous car repair manuals, blamed higher costs and said trading in the second half of the year could be even worse.

Among the smaller energy stocks, the Russian oil and gas explorer Urals Energy was well bid after the heavyweight US broker Morgan Stanley initiated coverage of the stock with an "overweight" recommendation and a 413p price target. Urals shares surged 60p to 360p.

Matalan, the discount clothing retailer, was 3p higher at 183p after reports linked the company and its chairman, John Hargreaves, with the French private-equity group PAI. However, since the company is in the middle of a share buy-back programme and bought shares as recently as last week, London Stock Exchange rules prevent it from soliciting offers.

Renova Energy succumbed to a bout of profit-taking after rising more than 280 per cent since listing at 69p in June. The renewable energy stock dropped 25p to 237.5p as retail investors decided to take some of their gains.

Centurion Electronics returned from suspension and nearly lived up to its name by dropping 95 per cent from its pre-suspension price to 1p.