Market Report: Safeway tops investors' shopping lists as bid speculatio n grows

Speculation about a takeover bid for the Safeway superstores chain intensified as, in busy trading, the shares rose a further 17p to 355p.

In the past few days there has been hectic activity with an array of investors, big and small, seemingly prepared to fill their trolleys in the expectation of a strike.

Asda, which held abortive talks with Safeway, remains the stock market's favoured predator. But other names featured on the list of possibles include such unlikely contenders as Marks & Spencer and Kingfisher.

Yesterday's Safeway excitement coincided with some bearish comments on industry's leaders, Tesco and J Sainsbury, from Paul Smiddy of Credit Lyonnais Laing.

He believes investors should ditch Sainsbury and Tesco as the sector is running out of steam. But Asda and Safeway should be held and he raises the possibility of Asda being tempted into a hostile bid. He says Safeway's "dire management performance" must put a new perspective on the "putative merger with Asda".

Safeway was comfortably riding above 400p until last month's profit warning which implied year's results would be little changed at pounds 420m. Mr Smiddy is also keen on Wm Morrison, up 2.5p to a 219p peak, on trading as well as bid prospects. Asda rose 1.25p to 175.5p; Sainsbury fell 6p to 511p and Tesco held at 506p.

Worries about Christmas trading continued to unsettle retailers. Kingfisher's third-quarter figures, left the shares trailing 22.5p to 828.5p although the 10.5 per cent sales increases prompted analysts to nudge profit forecasts higher. But a subdued performance by the Comet electrical retailing off- shoot fused Dixons, off 17p at 618.5p.

The rest of the market had an uneventful session with Footsie off 46.4 points to 5,130.7, weighed down by New York and interest rate worries.

Christie's International, the fine art auctioneer where entrepreneurial investor Joseph Lewis has a stake approaching 30 per cent, was another caught in bid speculation. On Monday it said talks with an unidentified party had ended. Then came a statement that a "modified" (whatever that means) offer could be under way. The shares rose 31p to 306p. The predator is thought to be rival Sotheby's, itself fearful of receiving a hostile strike, or the reclusive Mr Lewis.

Hard pressed RJB Mining was up 20p to 180p as the generators responded to Westminster pressure and extended their coal supply contracts until June.

A Merrill Lynch downgrading left international trader Inchcape off 16.5p at a 186.5p low and engineer GKN lost 46p to 1,264p on BZW caution. ABN Amro Hoare Govett is thought to be near to producing a downbeat review of Securicor, unchanged at 306.5p.

Grand Metropolitan and Guinness moved ahead as analysts warmed to next week's arrival of Diageo. Merrill Lynch sees the shares reaching 625p over the next year and describe the new cocktail as a "premier player"; Societe Generale Strauss Turnbull said the shares are a buy. Grandmet rose 6p to 587p and Guinness 5p to 585p. Allied Domecq, following a presentation on its franchise operations, shaded 6p to 535.5p.

Financials remained on a roll, helped by talk of consolidation in Paris with Societe Generale thought to be eyeing Paribas, which said it was unaware of any SocGen interest. BNP was also dragged into the speculation. It was enough to help Barclays put on another 26p to 1,665p.

Imperial Chemical Industries was buoyed by disposal talk, gaining 23p to 928p, but Railtrack was shunted 84p lower to 996p as the regulator signalled a far reaching review.

The quarterly Footsie changes relegated RMC, Blue Circle Industries and TI Group; their replacements are Mercury Asset Management, British Energy and investment group, Amvescap. Northern Rock and Jarvis are among the FTSE 250 newcomers with Ionica and Courts, the retailer, among the casualties.

Avis Europe motored 9.5p to 171p after becoming British Airways preferred car rental operator. Razorback Vehicles arrived on AIM, closing near its 102p flotation. The company is based in Australia and is involved in putting its own stamp on Volkswagen transporters.