Market Report: Tata Steel 'hammering out a Corus takeover'

Although shares in Corus Group, the Anglo-Dutch steel producer, closed 1.5p lower at 392.25p yesterday, yet another takeover story was doing the rounds among traders late in the session.

The lack of positive movement in the share price could be an indication that there has been so much takeover talk in the steel sector since Mittal Steel first bid for Arcelor in March that the market has some rumour fatigue.

However, volume was strong with 35 million shares changing hands and the talk is that Tata Steel, a subsidiary of Tata Group, India's largest privately owned company with 2005-2006 revenues of $21.6bn, is already deep in discussions with Corus senior management. The word is that an offer worth 580p per share, valuing Corus at almost £5.5bn, could be on the way before the end of this week.

Strong interim results from the supermarket giant Tesco gave the whole food retail sector a boost, following on from strong results from large European rivals last month. Morrison Supermarkets added 4.25p to close at 247p, a 26-month high, while J Sainsbury firmed a penny and a half to 378.5p.

Meanwhile, Merrill Lynch and Dresdner Kleinwort published bullish notes on Tesco, sending the shares 7.75p better to 373.5p on the back of its £1.1bn record first half pre-tax profits.

In the broader market, weak mining and oil sectors, combined with further selling in the online gambling sector, pushed London shares lower after another session of weak volumes as the FTSE 100 index closed 20.7 weaker at 5937.1. Commodity stocks accounted for eight of the top ten fallers in the blue chip index, with index heavyweight BP falling 14p to 568.5p as the French broker SocGen downgraded its recommendation to "sell". Shell was also out of favour, dropping 22p to 1,781p. Cairn Energy lost 46p to close at 1,836p.

Just when some brokers were saying that CSR, the microchip group, was looking oversold, along came the US investment bank Lehman Brothers with a substantial downgrade and a reduction in its target price from 1,200p to 800p, sending the shares 59p worse to 755p. Wolfson Microelectronics, which until recently has performed almost as a mirror image of CSR, was also out of favour with investors, shedding 18.75p to close at 432p.

AWG, the water utility group, succumbed to a bout of profit taking, falling 15p to close at 1,605p, still well ahead of the 1,555p offered by a consortium led by private equity group 3i. However, Citigroup believes that a counter offer is unlikely because most of 3i's partners in the deal are pension funds with lower return requirements than other potential bidders, meaning any potential counter bidders are likely to push the valuation too high.

Pennon Group also gave back some of Monday's gains, shedding 3.75p to 523p although most of the water sector held up against the falling market.

Rank Group, the bingo, restaurant and gaming group, came under pressure as the US investment bank Morgan Stanley placed a line of 17 million shares in the market at 230p, 6.5p lower than Monday's closing price.

Although the seller was not identified and the placing completed without too much difficulty, there was some speculation among traders that the proposed sale of the Hard Rock Café chain, on the cards since July, is not progressing well. The shares closed 5p worse at 231.5p.

A late surge in buying interest pushed Northgate Information Solutions 8p firmer to 88p by the close, fuelled by rumours that a private equity group is poised to make an offer for the company.

If an offer is to come, it would cap a remarkable 12 months for the software group - it reported a 95 per cent jump in full year earnings in July, less than a year after its head office burned down in the Buncefield oil depot fire.

The six-month deadline for AIM cash shells to implement their strategies, do a deal or face cancellation passed yesterday and as a result AIM is now 30 companies lighter.

Azure Holdings and Infinity Bio-Energy both made the cut with last-minute deals: gene therapeutics group ValiRx reversed into Azure in a deal worth £12.7m, sending the shares 0.6p better to 1.45p, top of the small cap leaderboard, while Infinity completed the acquisition of Brazilian sugar and ethanol producer Coopernavi. Infinity closed the session unchanged at 5.55p after trading resumed.