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Market Report: Takeover rumours sweeten Tate & Lyle share price

The sweet smell of takeover action wafted through the markets yesterday as rumours resurfaced of a bid for Tate & Lyle by Associated British Foods.

Dealers said there were renewed hopes that ABF would spend its pounds 1.5bn cash pile on Tate, which plunged to a year low of 401p earlier this month. Although ABF controls a substantial proportion of the UK sugar market through its ownership of British Sugar, some analysts do not believe buying Tate would cause competition problems.

Investors in Tate have had a bumpy ride recently as the company has been battered by sterling's strength. The company's woes have been compounded by reorganisation costs in the United States, and ongoing problems in emerging markets such as Bulgaria.

Analysts said the two companies would complement each other, but some expressed doubt about whether Tate was the kind of investment ABF was after. Tate closed up 8.5p at 414p, and ABF jumped 13p to 539.5p.

These days, when the sky seems to be the limit for Footsie, whisperings of takeovers are few and far between. The markets were once again engulfed in a sea of blue as Footsie closed at another record high of 5,086.8, up 60.6 points, having touched 5,095.3 in afternoon trading.

Trading was hectic, with almost 1.3 billion shares changing hands - the busiest day for around a month.

Sterling eased below the DM3 level after the Bank of England indicated that the quarter-point rise in base rates would be the last for a while, providing relief for exporters for the second day running.

Rolls-Royce motored along to 256p, up 13p, and TI Group ended 19p better at 593.5p. GKN, also a beneficiary of a weaker sterling, added 31.5p to pounds 11.88 after brokers responded positively to the company's better-than- expected profits the day before. Hoare Govett said the stock was undervalued, NatWest advised investors to add, and BZW said buy.

The building sector put on a spurt after the Bank's hint that the base rate rise would be the last in the current economic cycle. In particular, Wolseley jumped 24p to 485p, relieved that the rejuvenation of the construction industry would not be choked off by further increases in interest rates in the near future. The weaker dollar also helped as 40 per cent of the company's earnings are from the States.

But neither exporters nor builders quite managed to outsmart Barclays, which added a hefty 120p to close at pounds 14.48. The bank, which soared on news that it had lifted its share buyback by pounds 200m to pounds 700m, boosted shares in other financial stocks.

Otherwise, the insurance stocks put in a fine performance after Royal & Sun Alliance reported interim results which exceeded City expectations. The group leapt 23p to 545.5p, and gave others in the sector a lift into the bargain. Guardian Royal Exchange outperformed the other Footsie insurance companies, up 14.5p to 307.5p. Commercial Union, which reported the day before, ended 29p richer at 715p, and General Accident joined the rowdy rabble, finishing 17p up at 955.5p.

Not all the blue chips shared in the euphoria of Footsie's second record- breaking surge in a row. Rank was the worst-performing Footsie stock, plummeting 30.5p to 340p after the group announced interim results below forecasts. Reed International shed 40p to finish at 590p and Shell dropped 14.5p to 458.5p after both companies' interims also disappointed.

Several groups with media interests were in the doldrums after sceptics worried about a downturn in advertising revenues.

Granada Group eased 14.5p to 805p and Carlton Communications ended 9p poorer at 491p. Meanwhile, United News & Media closed down 6p at 681.5p over concerns it might buy into the cable industry.

NTL, the US cable group, has approached Telewest Communications about creating a rival to Cable & Wireless Communications. It is thought United is considering joining in.

News that United was to axe 100 jobs in its Miller Freeman trade magazine division did not seem to have a positive impact on the share price, despite the cost-savings to be gleaned from the cuts.

More Group, the poster advertising company, did not take part in the decline though, notching up a 9p rise to 611.5p. Analysts said the rebound, after the group hit a year low of 554p in June, was a reflection of contracts won in France and the imminent completion of a deal in Australia.