Market Report: Northern Rock buoyed by Lloyds takeover talk

Northern Rock has enjoyed a sterling few days, and was up again amid rumours Lloyds TSB was preparing to launch a takeover bid. The Newcastle-based group rose 38.5p in early-morning trading on the news, but softened to close up 6.5p at 716p. This came just a day after Durham, the county cricket team the group sponsors, lifted the Friends Provident Trophy at Lord's.

The beleaguered mortgage lender, a perennial shorters' favourite, rallied on Friday. This followed a slump that has seen it fall from a peak of 1,225p in February to 659p last week. It could have been even better if Newcastle United, the other team it sponsors, had managed to beat Villa at home.

The miners led the blue chips up with BHP Billiton the best sector performer, up 4.2 per cent at 1,275p. Rio Tinto and Kazakhmys also rallied after taking a hammering last week.

The FTSE 100 was up 99.2 in early-morning trading, riding the recovery in the US on Friday night, although it eased towards the end of the day, closing 14.5 up at 6,078.7. The strength was triggered by the Federal Reserve cutting its discount rate, easing liquidity fears in the process. The buying spree was carried into the Asian markets yesterday morning with the Nikkei up 458.8 and the Hang Seng 1,208.5 higher.

At the top of the pile was British Energy, after support from Goldman Sachs. The US broker upgraded its rating to "buy", despite lowering the price target from 570p to 536p on the back of lower short-term output and oil prices. It said the recent slump in value - 22 per cent down in under a month - had created a 28 per cent upside to its revised target price. The stock rose 4.6 per cent to 451.25p.

The roof fell in for the real estate investment trusts yesterday. British Land was the biggest loser, closing down 3.5 per cent at 1,198p. This followed reports the group was set to slash the price of the majority stake it is selling in its Meadowhall shopping centre over lack of interest. Land Securities and Hammerson were also down.

Segro, another Reit, was the second highest faller after it paid a special dividend. Following the sale of Slough Estates USA earlier this month, Segro announced the dividend as well as a share consolidation from 472 million to 435 million, which became effective yesterday. It closed down 2.7 per cent at 513p.

Another stock to feel the burn was Imperial Tobacco, which fell 22p to 2,138p after Citigroup said its earnings outlook would be materially affected by the credit crunch.

Among the top risers on the second tier, was Tullow Oil, after UBS upgraded it to "neutral". The Swiss broker said its shares had underperformed in a weak market, adding its price target was at a 4 per cent premium because of near-term oil prices and the management quality. Tullow closed up 20.5p at 450p.

Hiscox, the insurance group, soared 6.4 per cent to 280p. Investors and brokers were salivating over its interims, with pre-tax profits up a tasty 72 per cent. Evolution Securities said the results were at the top end of expectations .

Michael Page also announced positive interims, but suffered a markedly different fate. A bout of profit- taking saw the recruiter end the day among the mid- tier fallers, closing down 4.1 per cent at 438p.

Down among the small caps, the Consolidated Minerals takeover saga rumbled on, after a third bidder waded in. The Australia-based miner has been the focus of a bid battle between Pallinghurst Resources and Territory Resources. It rose 4p to 132p after announcing it had granted due diligence to a third, unnamed, party.

Elsewhere, the software company SQS Group was up 3p to 260.5p on the back of the acquisition of the catchily titled Triton Unternehmensberatung. It bought the IT consultancy group, which specialises in the insurance industry, for €15.5m (£10.6m). The move prompted Altium Securities to upgrade its target price to 325p.

Rumours were flying around the property services group Erinaceous after HBOS withdrew its £320m takeover bid, citing debt-market fears. News Erinaceous was in talks with other potential buyers, as well as entertaining the possibility of a management buyout, didn't stop the stock shedding 12.3 per cent to close at 139p.

Another to have that sinking feeling was Raymarine, which ended at the bottom of the small caps. The group, which makes systems for the leisure marine market, shed 24.3 per cent to 271p after the market reacted badly to its interim results which revealed concerns over its business in the US.