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The FT-SE 100 index surged 34.9 points to 3,124.2 and the FT-SE 250 index 16.5 to 3,391. Turnover was 806.9 million shares with a year's best 31,924 bargains. Gilts were firm.

The latest takeover story in the food industry is a bid from Hillsdown Holdings for Hobson, which has failed to live up to its followers' hopes. It is said that Hillsdown would like the Hobson business and Andrew Regan, who masterminded the group's dramatic transformation, would seek another vehicle. Hobson, once expected to be a high-flyer, held at 25.5p.

Just, the character merchanding group traded on the backwater 4.2 share market, should make profits of at least £500,000 this year, say stockbroker Keith Bayley Rogers. It describes the shares as "an interesting story for the more speculative investor". Mark Bernstein, finance director of Virtuality, has become a non-executive director. The shares are 3p.

With shares again in rampant form it was time, the stock market decided, to resurrect a tried and tested takeover favourite. Step forward, then, Arjo Wiggins Appleton, the paper and packaging group.

In excited trading the shares jumped 17p to 258p, a 20p-plus allowing for the stripping of the dividend payment.

Although Arjo was the best-performing blue chip, the market offered an encouraging array of double-figure gains. The FT-SE 100 index for the third time this year moved above 3,100. On the two earlier occasions it quickly surrendered its new exalted ground. The latest advance, 34.9 points to 3,124.2, has the distinction of achieving the highest level for four months.

A push from the futures market as well as New York's firmness were the main influences. And with currency markets much calmer, shares had little difficulty shrugging off early hesitation.

There is a growing relaxation over interest rates. US shares have bounded to new peaks in the belief the long round of increases has at last finished. Although New York's influence on the London market is on the wane, the huge gap that has opened up between shares on opposite sides of the Atlantic has surprised many observers.

Dividend payments, representing 10.4 index points, helped to understate the market's strength. Indeed, if the early fall is taken into account Footsie managed a 54 points swing.

Arjo, however, is at least one share that is unlikely to hold its price today; indeed, the stench of burnt figures could be around the market.

After trading stopped, Saint Louis, the French group, declared it had no intention of selling its 40 per cent interest in the group. It was the suggestion it was about to do so that provoked the action in Arjo shares.

Speculation over the St Louis stake has been strong since the death earlier this year of the group's chairman Bernard Dumon. He was in favour of retaining the Arjo interest, but it is felt the balance of opinion in the boardroom is now against hanging on to an expensive stake in a company not involved in its core business.

Company results contributed to the cheer, with Argos and TI Group among those ahead. Prudential Corporation, reporting today, jumped 11.5p to 332.5p. Profits of about £600m against £589m seem likely.

Suggestions the bread price war could be easing was the excuse for lifting Tomkins 11.5p to 242.5p, although some wonder whether it was flexing its muscles ahead of bid action. BAA, the airports group, continued its remarkable climb, gaining another 19p to 474p. On top of its pricing success and Australian share quote, the group has attracted SG Warburg support.

Glaxo, up 10.5p to 708.5p, continued to reflect the success of its Wellcome bid and British Petroleum gained 7.5p to 417.5p as Socit Gnrale Strauss Turnbull said the shares were undervalued.

Banks were firm; HSBC, making presentations in Scotland, improved 17.5p to 716p. Jupiter Tyndall, the fund manager, edged ahead 8p to 391p on reports Commerzbank of Germany was about to emerge as the long-signalled bidder.

Union, the financial services group bumping along near its year's low, firmed to 74p as a little-known US fund management group, Tweedy, Browne Co, was disclosed as a 3 per cent shareholder.

Courtaulds Textiles dipped 7p to 424p. The group has been meeting analysts. One, Sahill Shan, of BWD Rensburg forecasts profits of £55.2m this year and £62.7m next and says the shares are a buy.

VideoLogic, up 3p at 53p, has clinched a deal with NEC, the Japanese giant, to develop 3D games and virtual reality for use at home and in amusement arcades. Upton & Southern, in belated response to the boardroom changes, gained 0.5p to 4.25p, with Seaq putting turnover at 2.3 million shares.

Macallan Glenlivet, the Scotch whisky group, encountered selling, falling 8.5p to 189p. Scottish & Newcastle, still in line to acquire most of Courage, rose 6p to 498p.

Water Hall, the quarry group drawn out of the old Starmin business in a rescue operation, is attracting attention. Since the January restructuring the shares have become a favourite play of penny-stock followers. The price has doubled; even so, at 1.5p the shares are clearly a gamble on the ability of two former finance directors to turn the group round. Chairman Edward Weiss comes from Chubb and chief executive Stuart Larnder from Severn Trent.