Market Report: Rio in grand spirits as BHP 'merger' is dug up

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The Independent Online

Several ropy rumours have done the rounds lately and none more so than yesterday's re-emergence of the mining mega-merger.

It surfaced with talk that BHP Billiton was preparing a £60-per-share offer for Rio Tinto.

One mining banker said the story circulated every so often, but was pretty unlikely. "While the companies would be a good natural fit, the competition issues would be immense," he added.

Rio closed up 3.6 per cent at 4,235p on a buoyant day for the sector. BHP, which predicted strong production growth in 2008 at its AGM yesterday, strengthened 3.27 per cent to 1,798p. This news was topped by extraordinary reports that Xstrata was giving its miners sex education lessons to boost productivity.

Investors were checking in at Intercontinental Hotels, the second best performer on the top tier, after ABN Amro backed the group to offer "significant long-term value". Some vague bid speculation also emerged in the stock at the end of the day, and it closed 5.9 per cent higher at 1,095p.

Vodafone Group was the top blue-chip performer with its shares at a six-year high. It strengthened 6.45 per cent to 189.7p after strong numbers from France Telecom. Vodafone has been the focus of some wild rumours recently. Yesterday, there was vague talk of a bid for Carphone Warehouse – possibly traders getting their wires crossed over a mobile operator deal the two recently signed – and talk resurfaced for the umpteenth time that it was to sell its stake in Verizon Wireless.

The FTSE 100 was soaring although volumes were thin, with most traders struggling to explain the bouncing markets. It was up in the morning after an overnight rally in New York and maintained its strength to close up 94.3 at 6,576.3.

Among the fallers was Alliance & Leicester. The bank was down 2.99 per cent at 729.5p, with word it had suffered from a bearish Deutsche Bank note.

Home builders felt the pain after the British Bankers' Association said mortgage approvals had fallen 27 per cent in September. Barratt Developments was the worst hit, down 1.81 per cent to 650p.

Both stocks were overtaken by Capita Group in the afternoon. The support services company slipped 5.53 per cent to 700p. The group was smashed after losing its mandate to manage London's congestion charge to IBM UK.

Mid-tier investors were placing their bets on PartyGaming as the volatile stock was aces high throughout the day. The gaming group strengthened 13.64 per cent to 31.25p as it reported group revenue up 24 per cent to £115.7m. The board added that it remains confident for the full year. Daniel Stewart retained its "buy" recommendation with a 38p price target.

Also up off a strong statement, was Go-Ahead Group which said business in the first quarter had motored. The shares sped up 5.28 per cent to 2,652p.

easyJet was also flying high as it announced a deal for GB Airways worth £103.5m. The move, which boosts its presence at Gatwick, sent the budget airline up 6.78 per cent to 622p.

One of the worst FTSE 250 performers was ARM Holdings, as it reported a disappointing set of third-quarter results. Panmure Gordon said the microchip company's numbers were disappointing on the top line. The shares fell 3.01 per cent to 145p.

Among the small caps, the commercial finance specialist Davenham Group jumped 21.55 per cent to 290.5p after it revealed takeover interest from ACP Capital. Yet the board added that the approach, which could be worth about 325p per share, "is not one which fairly reflects the value of Davenham".

The gene therapy group Oxford BioMedica rose 2.75p to 33.25p after a business update. It said it was not aware of reasons for last month's share price fall, and set right several market misconceptions over its TroVax cancer drug.

Traders were watching River Diamonds Group with interest. One said there had been a bit of a run-up on scrappy retail buying yesterday, adding that this could mean imminent news flow. It soared 24.7 per cent to 2.68p.

The collapse of bid talks dominated the fallers outside the FTSE 350. The electronics group Feedback slumped a third to 2.5p after a one-line statement that the discussions it had previously announced, had been terminated.

Elsewhere, the beleaguered building services company Erinaceous Group fell to its lowest point yet, down a further 28.99 per cent to 24.5p. This came as Consensus Business Group, Vincent Tchenguiz's vehicle, announced that it did not intent to launch an offer.

Diamondcorp returned to the Alternative Investment Market yesterday after talks with Sonop over an acquisition were ended. It closed down 4p at 99p.

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