Henderson Crosthwaite helped fuel the excitement as leading analyst Brian Newman issued a strong buy recommendation. He believes BAe's offer for shipbuilder VSEL will be approved unconditionally by the Monopolies and Mergers Commission but clearance of the rival GEC bid will be subject to industrial and employment undertakings.
The MMC's recommendation is due to be submitted tomorrow. The Government's response should be known in a few weeks.
Mr Newman expects BAe to return with the cash or share terms which lapsed when the MMC was called in. The cash offer was 1,400p with the shares exchange now worth 1,692p.
He describes the BAe offer as a combination of industrial logic and financial engineering, but adds: "We do not believe that GEC, with no corporation tax benefits, is as committed to acquiring VSEL as BAe and may be reluctant to match the BAe share offer with cash."
But GEC, many believe, is keen to get its corporate hands on BAe. The two have admitted holding talks in the past. There is persistent, if somewhat confusing, speculation that GEC, denied VSEL, will launch a hostile bid for BAe.
Presumably any assault would include VSEL. Just what Whitehall would make of any such manoeuvre remains to be seen. BAe rights issue units, seen as the avenue for a secret share build-up, rose 9p to 158p after touching 164p. Volume was printed at 638,000, highest since dealings started at 117p a week yesterday. GEC slipped 1.5p to 305p and VSEL was unchanged at 1,610p.
The rest of the stock market recovered from a poor start when New York opened in better shape than expected. At one time down 21.2 points, the FT-SE 100 index ended 6.7 lower at 3,204.2.
Currency worries continued to niggle, but overall the market was inclined to display the splendid indifference it is inclined to reserve for the days leading to a long holiday weekends. Government stocks were ruffled by reports the Tories planned income tax cuts of 3p off the basic rate.
Eurotunnel's latest despair was not unexpected, leaving the shares 24p lower at 218p. UBS said sell. GKN, ex-dividend, was lowered 14p to 632p on the crash of a pre-production EH101 prototype helicopter on Friday. The company said it did not expect the set-back to affect the Government's order for 22 EH101s.
Racal Electronics gained 5p to 252p ahead of last night's investment dinner, hosted by Henderson Crosthwaite. Cadbury Schweppes fell 9p to 438p as NatWest Securities said take profits; Airtours dived 12p to 422p with Barclays de Zoete Wedd said to have downgraded. PowerGen slipped 1.5p to 464.5p, although BZW has upgraded its forecast for the year ended last month by £10m to £525m.
MFI, the flatpack furniture chain, was a good market as word leaked out its management had seen institutional shareholders.
ShareLink, the execution-only stockbroker, added a few pence to 237p on reports of unrest over the terms of the take-over from Charles Swab, the US investment house. GT, a large institutional shareholder, was said to be seeking a higher price.
Banks were firm with Lloyds, up 7.5p to 638p, still encouraged by the acquisitive noises made by the soon-to-be acquired Cheltenham & Gloucester Building Society.
Willis Corroon, the insurance broker, rose 10p to 252p as speculation continued it is in talks to sell its US insurance arm. The US giant Alexander & Alexander is the favourite candidate to buy the business.
Amersham International improved 35p to 880p following approval by the US Food and Drug Administration, said to be a regulatory break-through, for a brain imaging product.
Tottenham Hotspur's removal from the FA Cup produced a humilating reaction - a 23p fall to 141p. Well-tailored figures from Moss Bros lifted the shares 35p to 384p and Merchant Retail's decision to abandon food retailing achieved a 2p advance to 12.5p.
Meyer International, the timber group, was10p higher at 326p while Tarmac, thought to be involved in talks to sell its bricks businesses to Ibstock Johnsen, firmed 3p to 116p.
BLP, the woods laminates group where the employees' share ownership plan has a 31 per cent interest, gained 5p to 145p. It has appointed a new stockbroker, Butterfield Securities, which is forecasting profits of £1.75m for this year compared with the just-reported £1.34m.
Pan Andean, the Irish resource group, gained 1.5p to 6.75p on the backwater 4.2 market. There are rumours from the US of encouraging drilling prospects at its Chapare Field in Bolivia where for 18 months BHPhas been carrying out tests. BHP has an 80 per cent interest in the venture; Pan Andean holds the rest.