Market Report: Xstrata fired up by talk of Anglo American bid

The mining majors have kept the rumour mill busy recently, and talk yesterday was of another mega merger battle set to erupt. The prize at stake is Xstrata, so the talk goes, with stories of Anglo American coming in with a 42-per-share offer.

There was excited chat that Brazilian rival CVRD was set to wade in with a 48-per share counter-offer. One analyst said: "There have been a few questions over whether Xstrata could be moving into its endgame. It was an aggressive buyer on the way up, but now looks like it may be open to a potential sale."

Xstrata soared to the top of the leaderboard, 7.9 per cent stronger at 3,656p. Anglo was up 5.1 per cent at 3,400p.

The market was in fine fettle in the run-up to the weekend, as the slight fall in the FTSE 100 the previous day was forgotten. It closed 69.3 points higher at 6,554.9, after a slight retreat late in the day. The index was helped by a positive overnight performance on Wall Street, as investors backed President Bush's sub-prime mortgage salvage plan.

After taking a smashing in the wake of Thursday's rate cut, the housebuilders bounced. Taylor Wimpey was up 7.7 per cent to 214.5p, followed by Persimmon, the previous day's worst blue-chip performer, up 5.8 per cent to 794p. One trader said: "I don't trust this rise in the sector there is quite a lot of short covering going on."

The orthopaedics group Smith & Nephew was on firm legs, rising 14p to 603p as Citigroup reiterated its "buy" recommendation. It said: "We continue to believe in the longer-term restructuring story."

There were few fallers in the morning, with BSkyB the lowest on news that James Murdoch was to step down as chief executive and take his father's place as non-executive chairman. BSkyB is also waiting for Ofcom's decision on whether to pass its UK pay-TV review to the Competition Commission. Dresdner Kleinwort reiterated its "sell" stance, saying Sky's submission to Ofcom "looks surprisingly weak on our first detailed read, and we continue to believe the chances of regulatory intervention towards the end of 2009 remain high". It rallied to close 3.5p lower at 601p.

As the market weakened, the worst fallers were all shaken up, leaving Icap at the bottom. It was down 2.1 per cent at 664.5p when the dust had settled.

While several top-tier supermarkets suffered, Dairy Crest Group bounded up the mid caps. The group gained 8.7 per cent to 587p after it agreed a fine with the Office of Fair Trading over its investigation into milk price-fixing. Investors breathed a sigh of relief as it announced the "significantly reduced fine of 9.4m". Asda, J Sainsbury, Robert Wiseman Dairies and Glanbia also settled.

The property developer Berkeley Group Holdings pleased investors with its first-half numbers. The group posted an 11.2 per cent bump in pre-tax profits, sending the shares to the top of the second line, 9.5 per cent higher at 1,370p. It said demand continues to outstrip supply, and announced plans to return 241.6m to shareholders.

At the other end, Emap was the biggest casualty, down 9.5 per cent to 746.5p. The publisher spiralled after it failed to sell its business-to-business division. It did offload its consumer and radio operations for 1.14bn.

The profit-takers moved in on Abbot Group, which slipped 3.25 per cent to 335p. The oil services company had risen earlier this week on rumours that the two private equity groups duelling for the asset were set to table competing bids.

A strong performer among the small caps was Vianet Group after bullish statements from the management in the morning. The tech group rose 43 per cent to 3.75p after it said: "Revenues and margins will continue to improve." The group also said it was to raise 525,000 via a placement.

The small-cap miner Discovery Metals has been flying in recent days, after it was suspended from its listing in Australia pending an announcement. It has risen more than a fifth this month on talk of a positive resource update, but it slipped back 0.25p yesterday to 24.5p.

Coal of Africa, formerly GVM Metals, strengthened 8.75p to 86p as dealers heard talk of a share buyback on the horizon.

Some aggressive buying pushed Copper Resources up 19p to 144.5p, with traders saying it had further to go.

A product recall smashed the independent pharma group William Ransom & Son, which halved in value to 8.75p. Elsewhere, Proximagen Neuroscience, the drug discovery group, fell 4p to 88.5p as it revealed takeover talks with several companies had ended. The chat on the market was that the group had turned down an offer of 200p per share from a US biotech com-pany, with some investors holding out for more. The company declined to comment. By the end of the day, it had soared 16.22 per cent to 107.5p.