Market Report: Miners strengthen on consolidation rumours

Rumours of a heavyweight merger in the mining sector were the talk of the Square Mile yesterday, sending share prices higher across the sector.

Rumours of a heavyweight merger in the mining sector were the talk of the Square Mile yesterday, sending share prices higher across the sector.

If you believe the latest gossip, Rio Tinto, up 28p to 1,632p, is considering a move on its rival Xstrata, 16p stronger to 976p. The speculation seems to have been prompted by reports in Australia - where Rio Tinto has a significant proportion of its assets - that hinted the group could be willing to pay up to 1,280p a share for Xstrata.

It has long been rumoured that Rio is on the lookout for acquisitions. Until recently, some analysts believed the group may have beentempted to trump BHP Billiton's offer for Australia's WMC Resources. But this talk died down after Rio announced plans to double the size of its share buy-back.

Sector watchers took this as meaning that the company prefers to use its cash pile to reduce its share capital as opposed to using it for acquisitions.

Yesterday the group's share buy-back was again used by analysts as a reason to dismiss rumours that Rio is about to embark on a major acquisition.

They also pointed out that the group has usually been very conservative about buying assets and argued that its particularly strong project pipeline makes a move by the company on Xstrata less likely.

Elsewhere in the sector, Anglo American added 12p to 1,300p, BHP Billiton rose 14p to 652p and Antofagasta improved 24p to 1,112p.

Nervousness in advance of full-year results from Man Group sent shares in the world's largest listed hedge fund 19p lower to 1,213p. March and April are said to have been very poor months for the industry, and things are believed to have worsened this month as a result of a sharp fall in corporate debt prices, which is said to have cost hedge funds billions of pounds in losses.

Three months of dismal returns are almost certain to have led investors to pull their money out of hedge funds run by the likes of Man Group.

For the year to March 2005, Man is expected to deliver pre-tax profits of $770m (£421m), down from the $860m it achieved last year. Key to the performance of the shares in the wake of the results will be the outlook statement. The City will want to know whether the group's management still believesthe company can continue to grow at its current rate.

The FTSE 100 closed 7 points lower at 4,982. Regus gave up 5p to 87p on rumours that a major shareholder is looking to offload a substantial chunk of their holding. Commerzbank was mentioned by some dealers as the seller but Regus quashed this rumour by pointing out that the German bank does not have a shareholding in the company. The office space group is expected to issue a statement at its annual meeting tomorrow.

P&O gave up 4.75p to 310p as Merrill Lynch became the second broker in as many days to downgrade its rating on the ports operator. The US broker cut its stance on P&O to "neutral" from "buy" on valuation. On Monday, Citigroup announced a similar downgrade.

Halma lost 3p to 146p in response to news that ABN Amro had slapped a "sell" recommendation on the engineer. The Dutch broker reckoned that Halma stock is significantly overvalued and drew attention to the company's pedestrian growth rate.

According to ABN, Halma has spent £129m on acquisitions since 1999 but has delivered average earnings growth of just 2.7 per cent over this period.

Lower down the pecking order, Regal Petroleum dropped 1p to 83.5p as the oil group's exploration director, Christopher Green, resigned. The decision came just five days after his appointment.

The fallout from the Regal débâcle failed to undermine the floatation of Borders & Southern Petroleum. The group raised £9m at 20p, and its stock closed at 27.5p. Borders & Southern is chaired by Harry Dobson, the mining tycoon who made £30m this month from the sale of his stake in Manchester United to Malcolm Glazer. The oil and gas explorer will use the money it has raised to develop its concessions off the coast of the Falkland Islands.

WH Ireland added 12.5p to 132.5p as a large seller was cleared from the market. Dealers reckon the 8 per cent stake in the stockbroker that crossed the market at 120p belonged to JP Morgan Asset Management. Ulster TV gave up 9.5p to 462.5p as investors worried about the impact on the broadcaster of the weakening outlook for advertising revenues. Cranswick rose 10p to 572.5p after the sandwich maker unveiled strong full-year results. In the wake of the figures, Panmure Gordon upped its rating on the stock to "buy" from "hold".