The supermarket chain bucked a slumping market to close nearly 1 per cent, or 1.75p, higher to 184.5p in chunky volume of over 23 million shares. The rise came despite Safeway's exclusion from the Morgan Stanley's MSCI index - one of the most widely followed benchmarks - which prompted several fund managers to dump the stock.
Foreign-minded dealers said the reason for the strength of the struggling Safeway could be found abroad. According to whispers coming from Holland and France, the Gallic retail giant Carrefour is planning a tie-up with its Dutch competitor Royal Ahold.
The deal could have serious implications for UK retailers and Safeway in particular. Ahold has often been mooted as a predator for Safeway and a tie-up with Carrefour could add to its firepower and desire for a strike in Britain.
Cynics countered that a merger between the two European giants had little chance of being cleared by the competition authorities. However, supporters of the Safeway takeover story argued that if Ahold's continental expansion were to be stopped by an anti-trust inquiry, it could turn its attention to the UK. Either way, Safeway, whose shares have plunged from 426p three years ago, would be an attractive target.
The rest of the sector was excited by a re-run of rumours that Marks & Spencer, 11.5p higher to 251.5p after touching a new low of 231.5p, could merge with Tesco, down 4.75p to 169.5p after a lacklustre trading statement.
An alternative story suggested Tesco could have a go at underperforming Boots, up 47p to 625.5p. There is also talk of a bullish analyst note on the chemist chain. J Sainsbury was caught up in the excitement and rose 6p to 309.5p.
Remaining blue chips had an off day. The FTSE 100 lost 95.1 points to 6,597.2 as profit-taking in heavyweight sectors and a mixed Wall Street put an end to its record-breaking run. Volume was a huge 2 billion, as the changes in the MSCI indices triggered portfolios reshuffling by large institutions. Two large sell program trades contributed to the rout. The Dow put together a valiant attempt to rescue the UK market, rising by nearly 100 points by the London close, but weakness in the tech-laden Nasdaq and the broader S&P was enough to dampen sentiment.
Profit-taking in the telecom and banking sectors - the two high-fliers of recent times - played into the bears' paws.
Cable & Wireless shed 76p to 805p after being ejected from the MSCI index. Energis followed suit with a 100p slump to 2,549p after shareholder National Grid - down 19.25p to 481.5p on poor interims - said it wants to sell its stake to a telecom predator.
BT plummeted 54.5p to 1258.5p after the regulator vowed to break its monopoly of local calls. The news helped smaller operators Redstone, up 29p to a record 355p and Kingston Communications, 59p higher to 700.5p. Rumours of a foreign bid for Kingston were also around.
Banks were also under the profit-takers cosh. Lloyds TSB, down 28.5p to 802.5p, Halifax, 24.5p lower to 718.5p and Barclays, 61p down to 1,810p, were three casualties. NatWest outperformed the sector, falling just 3p to 1441p, on whispers of a third bid from a US giant, while predator Bank of Scotland firmed 13.5p to 742p on growing bid talk.
ScottishPower suffered a black-out, plunging 37p to 552.5p, as American tracker funds sold the stock after SP's all-share takeover of US rival Pacificorp.
Takeover stories propped up a few blue-chips. Cement-maker Blue Circle rose a solid 20.75p to 359.75p on rehashed whispers of an offer from France's Lafarge, while publisher Reed jumped 19.75p to 392.5p on returning rumours of a foreign strike.
GEC debuted with a new name, Marconi, in a new sector, Telecom Equipment, and rose 19.5p to a best-ever 801.5p on vague bid talk. However, British Aerospace, soon to be called Baesystems, plunged 30.25p to 358.75p after an analysts' presentation.
Away from the bid whispers, tobacco group BAT was puffed 33p higher to 394.5p as investors warmed to its defensive qualities, while computer specialist Logica soared 136p to 1515p on hopes of a large deal.
The FTSE 250 followed the leaders downwards losing 24 to 6,194.80 despite intriguing corporate action stories.
The media group Incepta, owner of PR agency Citigate Dewe Rogerson, lost 0.75p to 80.75p despite talk of a major European buy. Capital Radio was cranked 87.5p higher to 1360p amid talk of a bid from a larger rival, while money-printer De La Rue cashed in on a 30p rise to 390p on vague talk of a deal. Mail order retailer N Brown soared 52p to 580p after clinching a deal to deliver goods for a US client, while hopes of a US deal or even a listing sent artificial skin maker Smith & Nephew 2.75p higher to 217.5p.
The SmallCap outperformed its bigger brothers to close 2.9 higher at 2873.20.
Travel minnow Holiday Break flew 25p higher to 354p on whispers of a bid from a larger rival. Investment vehicle London Pacific jumped 5p to 495p on rumours that a US Internet company in which it has a large stake will soon float at a massive premium on Nasdaq.
Flat-speaker maker NXT, up 58.50p to 1315p, made a lot of noise by announcing a joint venture with the Government to develop a speech recognition systems. Countryside Properties firmed 2p to 135p after broker Charterhouse upgraded. Consultant Proudfoot rose 3p to 15.75p after appointing KPMG partner Kevin Parry as chief executive.
Software group Planit, chaired by entrepreneur Bob Morton, fell 4p to 81p on profit-taking after good results. Traders say that Mr Morton's Freecom.net - an operator of websites for small businesses - should debut today at a huge premium to its 130p issue price.
Online music provide Arthur Shaw soared 1.75p to 8.75p on whispers that a major deal with a famous producer is near.
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THE CONSULTING engineer White Young Green, up 0.5p to 140.5p, is expected to deliver an upbeat statement at today's shareholder meeting. Traders believe the company is having a storming year with order books at an all-time high.
There are also rumours of a couple of new high-profile contract wins. One of them is believed to be with the Ministry of Defence, while the other should involve a client in the North of England.
WESTERN SELECTION, up 5.25p to 19.5p, has caught the eye of a few punters. According to the rumours, the investment vehicle is looking at the reverse takeover of a privately owned Internet company.
Western, 40-per cent owned by fund manager London & Financial, is said to have identified a target and a deal could be near. A web takeover would put an end to its current strategy of taking stakes in sleepy companies to revive them.