Market Report: Private equity buyout talk gives a lift to Smiths

Smiths Group is in the process of selling its aerospace arm to GE for just short of $5bn (£2.6bn), most of which will be returned to shareholders. However, if the rumours are to be believed that may not be the end of corporate activity and some traders believe that a private equity bid for the company will come as soon as the ink is dry on the GE deal.

March's trading statement from Smiths indicated that the business is performing well but the speculation is that private equity houses are looking at what is left with a view to breaking the company up. Smiths has already confirmed that the remaining medical technology, detection and speciality engineering arms are not up for sale but the word among traders is that a leveraged buyout bid would not come as a shock. The shares closed 10p firmer at 1,082p.

The banking sector is preoccupied with speculation about the future of the Dutch group ABN Amro, but the word doing the rounds yesterday was that JP Morgan could spoil the party by bidding for Barclays, currently involved in exclusive merger talks with the Amsterdam-based investment bank. However, traders seem to be getting a little tired of the rumours and Barclays managed only a 2p gain to 735p. Meanwhile, Royal Bank of Scotland, thought to be mulling a counter-offer to ABN, added 4p to close at 2,008p.

Mining stocks were in demand ahead of what was expected to be a strong set of numbers from Alcoa, the US aluminium giant, due after trading in London ended, on top of encouraging import data from China. The rally was led by Vedanta Resources, 50p better at 1,432p, and Rio Tinto, up 75p to 3,120p, as copper prices reached a 7-month high.

London traders were buoyed by a stronger mining sector, and talk of the bid for J Sainsbury, 22.5p lower at 538.5p, collapsing did little to dent confidence. One trader said: "There are only three quoted major food retailers and Tesco and Morrison have their own reasons for outperforming. Even if the bid fails I see little impact on the rest of the market." A positive start to trade in New York helped the FTSE 100 close 20.5 better at 6417.8.

Credit Suisse cut its price target for Carphone Warehouse but still believes there is plenty of upside left in the shares. The Swiss broker cited increased spending on broadband for its cut from 420p to 400p, but with continuing speculation that Charles Dunstone, the chief executive, may take the company private the shares fell only 8.25p to 284.75p.

Traders are banking on a relaxation of the US online gambling legislation that decimated the sector last September. Although PartyGaming and 888 Holdings both sold their US operations for nominal sums after September's developments, traders believe both have the liquidity and brand name to quickly rebuild a US presence if the laws are amended. PartyGaming climbed 3.25p to 56p, while 888 added 2p to close at 127.25p.

The broker Panmure Gordon upped its rating on the pub operator Greene King from "hold" to "buy" after a visit to its Scottish operations. The broker told investors that Belhaven Breweries, acquired by Greene King in October 2005, is performing ahead of forecasts despite the smoking ban north of the border and that Greene King is trading at an undeserved discount to the blue chip Enterprise Inns. Panmure increased its target to 1,200p as the shares climbed 6p to close at 1,075p.

In the small caps, a grim profit warning from the non-fault car accident replacement group Accident Exchange sent the shares crashing to close 70.5p worse at 107p, a 39.7 per cent decline. Lower than expected rental days and changes in rental day mix will mean full-year pre-tax profits of about £18m, but of more concern to shareholders is the prospect of more fund-raising.

The marketing services group Creston has made its first move into the United States after several months of talking about it. The company has appointed Steve Blamer, ex-global chief of FCB Worldwide, part of Interpublic, the US advertising giant, to lead its US unit. The word in the market is that Creston is eyeing a handful of possible US acquisitions. The shares climbed half a penny to 193p.

Finally, there was a positive start to trading for Matica, an Italian provider of personalised security for credit and identity cards, as it listed on AIM. The broker Seymour Pierce led the placing at 100p per share, giving the company a market capitalisation of £10m. The shares found some support and closed 7.5p firmer at 107.5p.