Market Report: BG drills ahead as buyout rumours fuel speculation

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The London market continued to weaken last night, but BG overcame the downdraft as speculators revisited rumours of a bid interest from rivals in the oil and gas sector.

FTSE 100-listed Royal Dutch Shell, Brazil's Petrobras, America's Exxon Mobile and the Russian energy giant Gazprom were all named as possible bidders. The large number of potential suitors, coupled with the fact that BG often features in the market rumour mill, stoked scepticism among traders. However, the recent jump in deal activity elsewhere meant that they were careful to acknowledge the possibility of a takeover proposal, particularly when it came to Shell, which has been linked with the natural gas giant in the past.

The Korean National Oil Corporation's decision to mount a hostile bid for Dana Petroleum also fuelled the rumours, with speculators highlighting the gambit as evidence of a growing appetite for mergers and acquisitions. The chatter drove BG to 1,091.5p, up 6 per cent or 61.5p, while Shell ended the session at 1,724.5p, down 15.5p; Dana, boosted by news that the Korean company had secured the non-binding letters of intent from investors representing nearly 50 per cent of the oil prospector's shares, gained 103p to 1,798p.

Overall, deal hopes were offset by recovery fears, with the FTSE 100 losing 16 points to 5,195.28 and the mid-cap FTSE 250 index closing at 9,761.15 – down 73.93 points after recent data showing weakness in the US jobs market. Worries that the American economy may contract over the second half of the year clouded the demand outlook for industrial metals such as copper, dampening the mood in the mining sector.

As a result, Kazakhmys ended as the weakest of the blue chips, shedding 47p to 1,141p, while Xstrata closed at 1,018.5p, down 31.5p. Antofagasta at 1,011p, down 12p, and Anglo American at 2,340p, down 20p, were also held back last night. BHP Billiton fared better, adding 11p to close at 1,821p, amid signs that the Chinese state-owned chemicals group Sinochem might be interested in PotashCorp, the Canadian fertiliser giant that is the subject of a hostile bid from BHP.

In the wider sector, African Barrick Gold went the other way as investors sought cover in the yellow metal, the traditional hedge against macroeconomic risks. The stock was marked up by 10.5p to 572.5p as gold prices flirted with new highs. In another sign of the demand for the precious metal, New York's SPDR Gold Trust, the world's largest gold exchange-traded fund, saw its holdings swell by nearly 4 tonnes on Thursday.

Back on the downside, the banks were feeling the strain of the economic worries. The Royal Bank of Scotland was 1.05p worse off at 45.42p, while state-backed peer Lloyds lost 0.8p to 69.29p. Barclays fell to 317.4p, down 2p, while HSBC and Standard Chartered lost 634.2p and 13p to 1,700.5p respectively.

Elsewhere, Cobham was 0.5p behind at 210p as some negative comment from Nomura weighed against news of an $18m contract for the aerospace electronics group.

The broker published a review of the European aerospace and defence sector, cutting Cobham to "reduce" because the stock's premium to the wider sector is "near an all-time high" – despite the company facing increasing competition in the defence electronics market.

The competition also adds risk to the company's bolt-on acquisition strategy. "The major defence contractors all seem to be looking in the same areas, driving up the acquisition multiples to the point where shareholders would be right to be concerned about a 'winner's curse' associated with an sought-after asset," Nomura said.

The broker was keener on Meggitt, which was 0.2p lower at 276p despite Nomura telling clients to "buy". "Although Meggitt's first-half results failed to meet market expectations, we expect [its] sales to rebound strongly in the second half and see the stock's recent underperformance as an attractive buying opportunity," the broker said, labelling the airplane parts supplier its top pick in the sector.

Further afield, Connaught, the social housing repairs specialist, continued to slide. Its shares slumped by more than 13 per cent to 1.9p to 12.4p – taking the decline since the beginning of July to nearly 90 per cent – amid reports that questions over the troubled firm's accountancy practices may damage its ability to sell off parts of its business. Sentiment was also hit by a separate report that Norwich City Council, a Connaught customer, had put together plans to ensure the continuation of key services if the company collapses.

Over on AIM, NBNK Investments – the banking business backed by Lloyd's of London chairman Lord Levene and Sir David Walker, the former Treasury and Bank of England official – raised £50m in its market debut, issuing 50 million shares at the price of 100p apiece. The business aims to build a network of 400 to 600 branches across the UK. Besides Levene and Walker, NBNK counts Lord McFall, the former Labour MP and chairman of the Treasury Select Committee, among its directors.

FTSE 100 Risers

GlaxoSmithKline 1,206.5p (up 16p, 1.3 per cent)

Gains as macroeconomic worries spark interest in defensive stocks.

Scottish & Southern Energy 1,118p (up 7p, 0.6 per cent)

Like Glaxo, SSE rises as investors buy in on its defensive characteristics.

Next 1,954p (up 1p, 0.1 per cent)

The retail chain stands firm after Numis revises its recommendation from "hold" to "buy".

FTSE 100 Fallers

Wolseley 1,280p (down 44p, 3.3 per cent)

Unsettled by worries about the strength of the US economic recovery.

Rolls-Royce 560p (down 11p, 1.9 per cent)

Nomura raises its target price from 495p to 550p but maintains "reduce" stance.

United Utilities 563.5p (down 9p, 1.6 per cent)

S&P Equity Research switches its stance to "strong sell" from "sell".

FTSE 250 Risers

JKX Oil & Gas 291.6p (up 8p, 2.8 per cent)

KNOC's decision to mount a hostile bid for Dana Petroleum sparks hopes of sector consolidation.

Afren 97.75p (up 1.35p, 1.4 per cent)

Like JKX, optimism about consolidation offsets the impact of weakness in the wider market.

Hochschild Mining 326.9p (up 2.9p, 0.9 per cent)

Trades higher as investors seek to increase their exposure to gold.

FTSE 250 Fallers

Hansen Transmissions 54p (down 4.2p, 7.2 per cent)

Share price remains weighed down by recent results from key client Vestas.

Ferrexpo 302.7p (down 9.3p, 3 per cent)

Miners retreat amid concern about the outlook for the world's demand for metals.

ITV 54.5p (down 1.45p, 2.6 per cent)

Takeover rumours fade; traders bank profits following Thursday's speculative gains.