Market Report: BG Group flares higher amid takeover chat

The old rumour mill was grinding yesterday, with further gossip driving up the shares in BG Group. The gas explorer had already risen more than 3 per cent last Wednesday following talk that China National Offshore Oil Corporation (CNOOC) could come in with a £14 per share bid.

That same chatter returned yesterday and the shares climbed again, closing 27p higher at 1194.5p. The market was slightly more shy on the second bite, especially as the rumoured price had shot up to £18 per share.

The FTSE 100 was in the black for most of the day and closed 39.1 points higher at 5,742.52. The leader board was headed by Autonomy in the run up to its third-quarter results. UBS thinks the technology company "does not need to do much to see a bounce". The shares certainly bounced yesterday, rising 71p to 1,419p. The market is also waiting to hear details of a potential deal Autonomy is cooking up, as it looks to spend some of the £500m war chest burning a hole in its pockets.

Over the summer, the company was also linked to a series of takeover approaches itself. Some analysts suggested that yesterday's price rises were linked to those reheated rumours. George O'Connor, at Panmure Gordon, pointed out that the shares since an update on 6 October had "been pummelled, most recently by a half-hearted attempted patricide". However, he cautioned that share prices tended to fall on results days as investors picked over the details.

BP's shares also rose after it sold oil and gas fields in Venezuela and Vietnam to Russian joint venture TNK-BP for $1.8bn. The move expands TNK's reach beyond Russia and also raises funds to help BP pay for the oil spill in the Gulf of Mexico. The shares closed up 6.7p to 432.1p.

The second-highest riser was Lloyds Banking Group thanks to support from Goldman Sachs. The broker forecast that Lloyds would have an impressive risk capital base over the next few years, possibly the highest in the sector, and almost twice as much as Barclays or Royal Bank of Scotland. "By 2012, we estimate that Lloyds will be one of only seven banks with capital above Goldman Sachs target core tier-one ratios in excess of 20 per cent," the analysts said. Shares in Lloyds rose 2.02p to 72.2p. Barclays was up 4.25p to 289.25p despite Goldman cutting its price target to 342p.

Smith & Nephew, which makes replacement hips and knee joints, jogged higher as it revealed plans to develop a cartilage regeneration product. It signed a deal with the biotech firm Nanotope over developing compounds that can be injected into patients and work to regenerate certain tissues. The shares rose 11.5p to 554p.

The mining sector pitched to the bottom of the top tier as metal prices retreated with the rebounding dollar. This came as HSBC issued a note advising against the current vogue for investing in copper. "The market loves copper but it is increasingly a momentum trade and the upside is compressing," the bank said, also downgrading Xstrata and Antofagasta from "neutral" to "underweight". Xstrata's shares gave up 6p to close at 1,305.5p and Antofagasta fell 19p to 1,288p.

There was further bad news for two of the big miners as their teetering iron ore joint venture finally collapsed. BHP Billiton and Rio Tinto agreed about 10 months ago to set up a production body in Western Australia, but it fell apart yesterday owing to regulatory issues. Marius Kloppers, the BHP chief executive, said: "It has become clear this transaction is unlikely to obtain the necessary approvals to allow the deal to close and as a result both parties have reluctantly agreed to terminate the agreement." Rio's shares fell 63p to 4080p and BHP was down 14p at 2185p.

Storming ahead of the rest of the pack on the FTSE 250 was Bluebay Asset Management after it recommended that shareholders agree a takeover by Royal Bank of Canada. The 485p-per-share deal bid valued the group at £963m and was almost a 30 per cent premium to its closing price on Friday. Analysts at Oriel Securities reckoned the bid was more than likely to succeed. "This price looks very full and may not leave room for any counter-bidders," it said in a note. Bluebay's shares closed up 111.3p at 487p.

The British chemicals company Yule Catto also rose as some much less concrete talk of a takeover emerged in the afternoon. The group, which replaced Connaught on the FTSE 250 only last month, rose 22.3p to 268.8p. It endured a tough recession with its share price falling to 37p, but has grown steadily since the start of 2009.

Computacenter benefited from support from UBS, which raised its target price from 355p to 390p on the back of some strong third-quarter results. The shares closed up 13.7p at 360p.

There was little corporate news to drive the downside on the FTSE 250, although the miners suffered. ITV fell 1.2p to 65.5p despite backing from KBC Peel Hunt. The broker initiated coverage on the broadcaster with a "buy" rating and a price of 71p.

On the growth market, Agriterra surged 0.75p to 3.8p after an operations update. It announced record buying and sales on its grain processing and cattle ranging operations in Mozambique. Despite swinging to a full-year profit, shares in Lok'* Store Group fell 3.5p to 124.5p.