Market Report: ARM touches highest level since January 2002

A flurry of bid speculation drove ARM Holdings to pole position on the FTSE 100 last night.

The semiconductors group rose by as much as 32 per cent in mid-morning trading, touching its highest level since early 2002, amid rumours of bid interest from Apple, the American technology giant which is widely believed to use ARM-based chips across its iPhone and iPad range of devices. The chatter has been around before, and had boosted ARM's share price around the time of Apple's quarterly results in April. Besides lifting ARM, the rumours also drove gains in mid-cap peer Imagination Technologies, which was 14 per cent, or 33p, higher at 272p, and which counts Apple among its shareholders.

Though some pegged their hopes on the prospect, many in the market remained sceptical about the possibility of Apple switching roles from customer to acquirer. There were questions about how other ARM clients – the company's technology powers a whole host of products, including Samsung, Toshiba and BlackBerry phones – would react to it being taken over by a rival such as Apple.

Indeed, ARM's president Tudor Brown, responding to the last round of rumours, played down the prospect by highlighting the fact that "ARM's business model is fundamentally about being independent". Though he added that "there aren't any poison pills in our contracts", he went on to say that "in a sense the whole business model is a sort of poison pill in that it works best by being fiercely independent, not owned by anybody". As it was, the chatter subsided as the session progressed, with ARM, which declined to comment on last night's rumours, relaxing to 290.1p, up nearly 6 per cent, or 16.1p, at the close.

Overall, the FTSE 100 continued to rise, adding 46.64 points to 5,132.5, while the FTSE 250 rose by 122.5 points to 9,609.68 upon confirmation that Chinese exports had jumped in May. Confidence in the country's ability to keep growing, and in turn keep consuming copious amounts of commodities, lifted the mood across the mining sector, with the likes of Xstrata, up 41.3p at 1,003p, Kazakhmys, up 38p at 1,144p, and Lonmin, up 40p at 1,602p, clocking steady gains. The sector received an additional boost from an Australian newspaper report which suggested that the country's Prime Minister Kevin Rudd may be about to revise the proposed tax on mining profits.

Banking stocks also continued to trade higher, with Lloyds adding 2.44p to 55.91p and Barclays gaining 5.15p to 287.85p, against the backdrop of the Institute of International Finance (IIF), a banking lobby group, saying that proposed regulatory reforms could hamper economic growth across the US, the eurozone and Japan. Beyond that, the IFF report suggested that banks may need to raise large amounts of common equity and issue new debt to comply with proposed capital, liquidity and other reforms.

On the downside, BP fell by as much as 11.9 per cent in the morning, with traders taking their cue from overnight falls in oil major's American depositary shares. The declines were pinned on worries that the company, which is coming under increasing political pressure in the US as it attempts to contain the Gulf of Mexico spill, may hold back from paying dividends. The stock pared losses as the session unfolded, however, closing about 6.7 per cent, or 26.05p, behind at 365.5p amid suggestions that it could end up as a target for PetroChina.

The analysts at S&P Equity Research said the sharp falls in BP's shares had been "overdone", "leaving it trading well below its true worth". Still, the broker lowered its recommendation to "hold" from "buy", citing "the political sensitivities regarding BP keeping its 2010 dividend", "the costs of the clean up" and "upcoming civil charges", among other factors. Bank of America Merrill Lynch stuck to its guns, however, calling for a reality check and reiterating its "buy" view, albeit with a lower 575p target.

Elsewhere, ITV, up 2.5p at 55.25p, was in focus after RBS analysts mooted the prospect of a combination with RTL-owned channel Five. "RTL has indicated that it exploring a disposal of Five. We regard ITV as the natural buyer," the broker said, repeating its "buy" view, and estimating that ITV could deliver £70m in cost synergies. "While regulatory hurdles are meaningful, we don't see them as being insurmountable," RBS added, raising its target for the stock to 75p.

Further afield, Essar Energy, which will move up to the FTSE 100 when the results of the recent index review are implemented, was 7.25p down at 442.25p as profit-taking overshadowed some positive broker comment, with Deutsche Bank initiating coverage with a "buy" view.

"[Essar's] expansion plans are likely to require significant capital investment over 2010-13. Yet, as the investments come onstream, our financial analysis points to the delivery of post-tax profits in 2014 of around $2bn.... This compares with pro-forma profits of just around $90m in the nine months to December 2009," the broker added, setting a 520p target price on the stock.

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