Market Report: Swiss suitors seen targeting Friends Provident

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As the market's attention continues to focus on the banks, tentative takeover talk began to return yesterday. Rumours circled Friends Provident of a 210 per share bid from Zurich Financial, and later in the day supposed interest from Swiss Reinsurance.

Friends confirmed in July that it was in talks with Resolution over a potential £8.3bn merger, which sparked a land grab in the industry. Investors piled in, sending Friends 4.24 per cent higher to 174.7p at the end of the day.

Another long-running bid situation involves J Sainsbury, which moved closer to a deal yesterday. The supermarket chain opened its books to the Qatar-backed Delta II fund, sending the stock up 2.8 per cent to 569.5p.

Top of the leader board at the end of the day was cruise liner group Carnival, whose stock has come under pressure this year. Investors backed the group's third-quarter results, which showed a 12 per cent bump in profits to $1.4bn.

The FTSE 100 slumped, as predicted, with investors locking in profits from the previous day's stellar performance. It fell 64.9 points but rallied to close 31 points down at 6,429.

The tailspin continued at Northern Rock, which fell a further 28 per cent to 185p. Fears that it would not find a bidder intensified after ING officially ruled itself out and institutional investors ran for the hills. There was support from the hedge funds, as it emerged that RAB Special Situation Fund had taken a hefty 6.05 per cent stake. The market awaits the next developments.

Much of the talk focused on which bank would be next. Yesterday's target was HBOS, after rumours did the rounds that the group had asked the Bank of England for financial aid. The group vehemently denied the speculation, but the stock closed the day down 4.23 per cent at 837p.

One trader said: "Investors haven't known which way to jump in HBOS, although it looks pretty secure. HSBC and Lloyds seem the safest banks, everything else looks fair game for the rumour mongers."

The retailers performed badly as Kingfisher released its interims yesterday. Despite a 6.2 per cent rise in profits, the bearish outlook for the rest of the year dragged it 5.83 per cent lower at the close to 181p. The statement said: "We expect the second half to be tough as recent interest rate rises and current uncertainty in financial markets affect customer behaviour."

On the mid tier, the London Stock Exchange soared 16.1 per cent to record highs of 1687p, after the Qatar Investment Authority bought a 20 per cent stake in the group. This came just hours after Borse Dubai revealed it had bought Nasdaq's 28 per cent stake in the London market. The value of the shares has more than quadrupled in three years, primarily driven by bid speculation.

After a lean few days for the travel industry, positive news flow provided welcome respite for Thomas Cook. The group said it was to sell airline Condor Flugdienst to Air Berlin in a deal worth up to ¿475m (£333m). Merrill Lynch said the deal would allow the travel agent to reduce its debt. Its stock rose 11p, although weakened at the end of the day to close up 3.5p to 282.5p.

Top of the fallers in the morning was Bradford & Bingley, which lost 8.61 per cent of its value as it slid down to 299.75p. By the end of the day it was replaced by Luminar, the night club operator. It was murder on the dance floor after a first-half trading update, despite announcing that trading was in line with expectations. Altium Securities said: "The shares could give some ground today but we would see that as a buying opportunity."

Dairy Crest also sagged. It fell 4.86 per cent to 685p after the Office of fair Trading said supermarkets and dairy processors had colluded to increase the price of milk, cheese and butter.

There were few surprises in the morning as Absolute Capital Management was the worst performer again. The hedge fund has fallen into disarray, with its shares shedding almost 90 per cent of their value since Monday, when the founder Florian Homm stepped down. It was overtaken at the end of the day by Avanti Screenmedia, which gave up 31.37 per cent to 8.75p.

Another AIM stock to suffer was Network Data Holdings, which lost 18.82 per cent to 34.5p as it announced first half losses. The company blamed the fall on the delay of the introduction of the Home Information Packs, or HIPS, by the government.

Talk of a takeover deal boosted Gulf Keystone Petroleum. The Algeria focused group rose 2.5p to 37.5p. Mercury Recycling was up after posting a 62 per cent rise in pre tax profits in the first half. Its shares rose 18.92 per cent to 22p, saying the rise was due to its share of the contract to recycle gas discharge lamps.