Market Report: Sun shines on RSA as broker sparks bid talk

It was a quiet day in London as traders looked to rejig their portfolios on the last day of the quarter.

One of the star performers was Royal & SunAlliance, after one broker said it can forget past threats to its existence and "proceed with greater confidence". It added that the group was an attractive merger target.

ABN Amro said the business would look attractive to several international operators including Allianz, Aviva, Axa and Zurich Fin-ancial Services, adding: "With its new geographical mix, we believe Royal's management is more in control of its destiny and can deliver attractive returns on equity over the next few years." It closed up2.58 per cent at 154.5p.

Investors were not feeling so sweet on Tate & Lyle, which dragged the market lower in the morning. The sugar producer decayed more than a quarter after it warned profits would be hit by losses in its sugars business. Panmure Gordon said the statement "has almost no redeeming features" and added that Tate & Lyle's reputation would be damaged as a result. The shares were smashed 155p to 402.5p.

The market was in reticent mood, as it was unable to post a third consecutive day of gains. The FTSE 100 was down 34 points in early morning trading but rallied to close 19.6 lower at 6,466.8.

News that a company has had to pay a multimillion-dollar fine rarely boosts its share price, but investors in Smith & Nephew breath-ed a sigh of relief after a two-year investigation in the US was wrapped up without too much damage. The UK-listed company will pay a civil settlement of $28.9m, which Citigroup described as "relatively low", sending the stock up 15p at 597.5p.

Friday proved volatile for mining giant Rio Tinto. The stock was down 25p in early morning trading after the chief executive warned that conditions remained tough in the iron ore markets. It rallied later in the day as it took a huge step towards sealing its deal for rival Alcan. The group said shareholders had approved the deal at an extraordinary general meeting yesterday, adding it should complete by the end of the year. Rio closed up 71p at 4,228p.

Elsewhere in the sector, Antofagasta gave up 3.5 per cent to close at 762.5p after it was one of the three downgraded by UBS. The broker said the miner was more expensive than its UK-listed peers, and pointed out three issues that could drag on the group. These comprised conservative cash distribution, legal issues around the El Mauro tailings dam, and a potential sell-down by the Luksic family, which owns 65 per cent.

An update also did for Enterprise Inns, which was forced to admit it had delayed a £750m refinancing plan over the turbulent state of the debt markets. The group said its pubs had continued to trade well despite the wet summer, but it wasn't enough to prevent a 1.17 per cent slide to 592p.

Bottom of the second string was another financial stock, as New Star Asset Management slumped 13.3 per cent to 364p despite beating expectations in its first-half results. The stock fell after chairman John Duffield said the group faced "a somewhat more challenging environment".

At the other end, Dana Petroleum hit a two-month high on news its partner Pertra had discovered oil in the North Sea. The group strengthened 6.31 per cent to 1,162p, and remains a "conviction buy" for Goldman Sachs.

Traders were licking their lips as they expected a takeover battle to erupt for Benfield Group. The shares jumped 35p on rep-orts it had been in talks over a potential £700m deal with the private equity arm of Goldman Sachs. It supposedly collapsed after the group was unable to secure debt to finance the takeover. Seymour Pierce said it was less bullish over further bidders emerging. "If GS can't raise the cash required, then most other potential private equity players won't be able to," it said. Benfield weakened to close 20p up at 290p

On the growth market, Monsoon was in focus after a bid sent the shares up 7.5p to 415p. Peter Simon, the chairman and founder of the fashion retailer, has offered 424p to buy out the remaining shares, a move recommended by the independent director and 11 per cent shareholder Polygon. The offer values Monsoon at £755m.

Results announcements dominated AIM stocks, with tiddler UniVision Engineering topping the risers after full-year pre-tax profits quadrupled to £1.4m. The Hong Kong-based group, which installs digital surveillance and security systems, stormed up 69 per cent to 2.75p. Publishing Technology Group, which is helping publishers "digitalise" their books, also ticked up after it predicted a strong second half of the year.

Direct Wonen was the worst hit on AIM. The Dutch property and financial services provider boosted operating profit fourfold but crashed by a third after it warned that revenues for the group would be below market expectations.