Market Report: Smith & Nephew boosted by US takeover talk

Smith & Nephew was in rude health yesterday, as pre-summer takeover speculation returned to bolster the stock. The group, which makes artificial hips and knees, continued its solid rises over the past week, on rumours of an 850p-per-share bid from American group Stryker Corporation.

Its shares strengthened 2.63 per cent to 625p on the chat, which last did the rounds in June after a private equity bid for rival Biomet. It rose last week as three orthopaedics peers reported solid earnings. Landesbanki said it pointed to a strong third quarter for S&N.

There was also talk of a potential £28-a-share bid in Cairn Energy, boosting the oil and gas group 7.48 per cent to 2269p. One trader rejected the speculation, saying it could well be a share ramp. He added it could be similar to Johnson Matthey last week. Matthey had leapt almost 10 per cent after rumours of interest from US group Praxair. It has since retreated after further newsflow failed to emerge.

The top tier was on the rebound yesterday as investors put Monday's jitters behind them and charged in looking for bargains. The previous day's losses were wiped out as the FTSE 100 stormed 103.4 points higher, boosted by an overnight rally on the Dow. It couldn't hold the surge and weakened at the close, ending 54.7 points up at 6,514. One trader said: "So it looks like Armageddon was averted. Not a huge surprise, although these huge shifts in sentiment are getting a bit tiresome."

The miners were feeling the love again after the previous day's profit-taking. Antofagasta rallied 4.8 per cent to 818p, topping the leaderboard at the close, while Vedanta Resources was also flying high, 4.67 per cent stronger at 2150p.

The housing stocks were firmer after a 6.7 per cent rise in the US Homebuilders Index on Monday. Persimmon was the pick of the bunch, up 4.11 per cent to 988p, as it also announced a "limited" share buy-back programme, to take advantage of recent weaknesses in the share price.

Oil major BP was looking slick, rising 7p to 612p despite reporting a slump in profits. Net income before non-operating items fell 27 per cent in the third quarter to $4.2bn, although it still managed to beat market consensus. Evolution Securities called it a "flying start for BP's new era" and slapped a "buy" recommendation on the stock. In the same sector, Tullow Oil was the lowest in the morning after a damning note from Citigroup the previous day. Yet it rebounded into positive territory in the afternoon, replaced by Tesco, which shed 2.21 per cent to 453.75p.

The financial stocks were cashing in as Bradford & Bingley dispelled talk that it faced a Northern Rock-style funding crisis. It quelled fears in an investor presentation on Monday, which Cazenove said should reassure the market. B&B rose 9.65 per cent to 278.5p.

The car retailer Inchcape was another strong FTSE 250 performer after a third-quarter trading update. The stock rose 6.6 per cent to 476.75p after the group announced sales rose 20 per cent.

The market was placing its bets on rumours that Rank Group was a target for Ladbrokes. The possibility was floated earlier in the week in a note by Dresdner Kleinwort and after support in the morning, Rank retreated to close 2.25p up at 100.75p.

Top of the mid-tier was Wellstream Holdings, an oil exploration group. The stock roared up 10.49 per cent to 884.5p after a pos-itive read-across from results released by rival Subsea 7. The Norwegian group reported a 51 per cent jump in earnings in the third quarter and predicted strong business until 2012. At the other end, Autonomy was languishing down in the dumps, 4.19 per cent lower at 915p. It sunk to the worst mid-cap performer after reporting in-line third-quarter results with a pre-tax profit rise from £15.9m to £24.9m. Evos cut its rating to "reduce" from "add" as a result.

Sportswear group Umbro hit the back of the net as Nike made an official bid worth 193.06p per share. Despite fears only last week that the woeful performance of the England football team would smash profits and share price, it soared 15.3 per cent to 190.25p.

Galleon Holdings, the intellectual property owner and developer in the entertainment sector, rose off a takeover of its own. The stock climbed 12.07 per cent to 32.5p as it announced it had agreed to buy the Hong Kong media group Phoenix Investment Global.

Top of the growth market was Hardy Amies, which more than doubled to 3.8p after signing licence agreements in Japan and a store opening in Edinburgh. The retailer has also signed a joint venture with Aussino Group to establish its brand in China.

One of the worst performers amid the small caps was Ultrasis after its full-year pre-tax losses widened to £769,000. The healthcare group shed 13.24 per cent to 0.95p.