Spring Ram said on Monday that it was in preliminary bid talks with Masco, a building materials company based in Michigan.
On the back of that announcement Spring Ram shares rose by more a third from 56p. They closed 1p higher yesterday at 73p.
However, Masco is said to have lost interest after carrying out a close examination of the business.
Masco is believed to value Spring Ram at no more than 45p a share. It is understood to have withdrawn from the scene knowing that shareholders were unlikely to accept a bid around that level.
Spring Ram has received several other approaches from interested bidders, but has dismissed most of them as bargain-hunters.
The company viewed Masco as a more serious suitor, but a bid at 45p would have been seen as nothing more than 'bottom fishing' by itself and leading shareholders.
Meanwhile, the remainder of the market was unsettled in early dealings on news of the exercising of 3,440 August Footsie futures contracts worth an underlying pounds 250m of equities.
The effect on the equity market was dramatic. Just 10 minutes from the opening bell the FT-SE 100 index had lost 14 points, and it spent the rest of the day in recovery mode.
The 100 index finally closed 2.1 points higher at 2,943.4, while the FT-SE 250 marched on to another record of 2,362.2, up 12.9.
Gilts also continued to climb, adding another quarter of a point. The FT Government Securities index is at levels last seen in the mid-Fifties.
The same could not be said for gold shares, however.
Fears that gold would not be able to hold above dollars 400 an ounce came home to roost and at one stage the price slumped by dollars 16 to dollars 386 in London amid some heavy selling.
The slide in gold started overnight in New York, with the price closing dollars 4 off at dollars 399 as investors took profits on the recent rise in the gold price to levels not seen since the Gulf war in 1991.
That led to a sharp drop in the London morning fix to dollars 396.45 against Wednesday afternoon's fix of dollars 402, itself a decline of dollars 1.25.
The slide continued on reports of large selling by the Chinese and accelerated sharply once New York dealings rooms opened again.
Despite the slump, however, dealers were optimistic that gold might soon start to head upwards again.
They said that investors had jumped on the ERM bandwagon on Monday and it was time for sober reflection now that things had quietened down on foreign exchanges.
Some dealers predicted that the market would range between dollars 395 and dollars 398 for the next few days before attempting a break back through dollars 400.
Gold coin prices were among the day's biggest casualties. One ounce Britannias fell dollars 14 to dollars 400, Krugerrands also dropped dollars 14 to dollars 382 and sovereigns fell dollars 2 to dollars 88.
Gold eventually closed in London at dollars 387.5. Both pure gold mining and related shares suffered badly.
American Gold lost almost a full pound to close slightly above pounds 52, Freegold lost 20p to 802p as did Grootvlei to 140p, Harmony slipped 9p to 317p, Harties fell 36p to 340p and Randfontein gave up 41p to 575p.
Cluff Resources dipped 2.5p to 33.5p and Lonrho, which has extensive interests in Africa, eased 2p to 129p.
Fortunately, encouraging heavyweight corporate results and a sharp downward revision of the UK current account deficit in the Central Statistical Office's annual pink book helped to shore up sentiment across most equity sectors.
Among the results, Barclays' interim figures initially met with a favourable response, but the shares closed 4p easier at 498p after running into some profit-taking.
Profits were also taken in National Westminster shares, down 3p to 506p, and Abbey National, off 4p to 400p.
The recent surge in market turnover, which amounted to more than 600 million shares yesterday, continued to buoy merchant banks.
Kleinwort Benson, which also announced much better figures than expected, shot up 25p to 485p and SG Warburg added 10p to 774p.
Concern about the latest fight in the US cigarette price war unsettled BAT Industries. Having dropped 10p in late dealings on Wednesday on news that Philip Morris of the US had abandoned previously planned price increases, BAT shares dropped another 7p to 448p.
Revived bid hopes lifted Invergordon 6p to 285p, making a two-day gain of 15p. Whyte & Mackay, which is owned by American Brands, is being tipped to mount a fresh assault on the grain whisky producer.
Whyte's previous 275p-a-share bid, which valued Invergordon at pounds 350m, was narrowly beaten off in October 1991. It retains a 41.3 per cent stake.
In oils, Shell lost 9.5p to 633p on disappointing second-quarter profits but British Petroleum recorded a 2.5p advance to 306p with results towards the top end of expectations.
Share prices were unsettled in early dealings by a large exercising of August contracts. Share prices, however, did manage to stage a slow recovery, enabling the FT-SE 100 index to finish 2.1 points higher at 2,943.4. The account ends on 13 August and settlement is on 23 August.
There has been a large shuffle in shares in the Stakis hotels and casinos group. Rena Capoyanopoulos, daughter of Sir Reo Stakis, has acquired an interest in 20 million shares from a Stakis family trust, taking her holding to 27.4 million, equal to 7.17 per cent. Sir Reo is interested in 7.9 million that are beneficially held and 3.45 million that are non-beneficially held. Stakis rose 1p to 57p.
Old rumours of a takeover bid by Cray Electronics for Logica resurfaced. Tentative but unsuccessful merger talks between the two are said to have taken place. There was also talk that Vega, the satellite systems group, was ready to act as a 'white knight' for Logica should Cray take aggressive action. Logica shares increased by 5p to 246p, while Cray finished the day 3.5p down at 149.5p.