MARKET REPORT: The Abbey habit leads a return to winning ways

You can't keep a good takeover story down and one of the best yarns to captivate the stock market is swirling around again - that mammoth bid for Abbey National.

On Tuesday shares of the first building society to become a bank enjoyed a rip-roaring session, surging 38.5p to 957.5p as stories flowed of pending bid action from HSBC or BAT Industries.

Then came the fall-out when the rumoured predators kept their powder dry.

But the "Abbey habit" returned yesterday. In busy trading the shares were at one time up 35.5p at 971p. They closed at 961p.

HSBC seems to have ousted BATs, at least in the rumour stakes, as the front runner.

The old Hong Kong & Shanghai Banking Corporation, which owns Midland Bank, is the firm favourite to strike with 1,250p a share again the suggested take out price.

BATs, however, is still thought to hover. Its final unbundling, the demerger of its financial and tobacco interests, seems likely to occur late this year. There is a strong feeling BATs would like to bolster its financial operations before it splits in two.

It could accomplish such an ambition by merging its financial side with Abbey, which would become a much more comprehensive operation, or go along one of the other rumoured routes, bidding for insurance groups Commercial Union or Legal & General.

Abbey, like other financials, has been a beneficiary of the stampede by fund managers to increase their weightings in a bid to accommodate the threatened sector explosion as Halifax et al arrive.

Barclays, the banking group, was another attracting attention on talk of a major deal. It rose 19.5p to 1,285p on revived talk of a sale of its securities arm. The German Commerzbank was named a possible buyer. The rest of the market returned to winning ways with Footsie setting another record with a 12.7 points gain to 4,693.9.

Once again it was unable to hold above 4,700. In morning trading, as buyers moved in ahead of the expiry of the May options, it was up 42.5 at 4,723.7 - another trading peak. As if abashed by its own confidence it eased back and when New York opened with some nervous twitches blue chips were under pressure.

But selective buying ensured Footsie did, at least, end at a peak.

Next, with an upbeat trading statement, led blue chips with a 26p gain to a 720p peak. British Airways, despite a cabin crew strike threat, rose 12p to 760p. Year's figures are due on Monday with around pounds 605m against pounds 568m expected.

Secondary lenders were hit after the Government threatened to clamp down on companies which specialise in lending to "vulnerable borrowers". Cattles dropped 25p to 313.5p; Provident Financial 45.5p to 589.5p and S&U 26.5p to 343.5p.

Another Government intervention, this time alcopops, lowered Bass, the biggest in the business with its Hooper's Hooch accounting for 70 per cent of the market, 13p to 816p.

National Power firmed to 566.5p after selling its 8 per cent stake in Southern Electric to HSBC James Capel. The deal, seemingly signalling the end of NP's ambitions to buy a regional electricity company, was worth around pounds 164m. It acquired the shares during its aborted bid for Southern, the last of the 12 privatised electricity companies to remain independent. Capel provided some acceleration for the transport groups. Its bullish comments lifted FirstBus 21p to 221p and National Express 30p to 517.5p.

Eurotherm, the electronic equipment group, put on 13.5p to 420p on renewed takeover speculation. Since last year's boardroom shenanigans the shares have been hit by worries the strong pound is hurting profits. The price touched 644p last year.

Amstrad, selling its consumer products to Betacom and lifting its stake to 69.7 per cent, rose 2p to 261.5p on hopes of a special dividend. Betacom fell 4.5p to 64.5p.

Adscene, the publisher, rose 7p to 149.5p (after 162.5p) as takeover rumours circulated and Lopex, the advertising agency, gained 2.5p to 38.5p as rival Incepta made what was described as a "tentative" approach.

Capital Radio improved 19.5p to 575p. The shares have come up from 530p this week, largely on the arrival of a new chief executive for its My Kinda Town restaurant chain.

Utilitec, the gas and water services group, lost a further 4.5p to 65.5p, a 12-month low. as Simex, a Lebanese company cut its stake to 9.6 per cent.