Bid speculation was evident around British Energy, which remained firm in the face of a weak market yesterday.
Market sources cited speculation that the French utility EDF had received funding assurances of more than £11bn for its proposed takeover of the British group.
BNP Paribas, Société Générale and HSBC were named as the banks charged with finding the money, and EDF was said to be preparing to table its firm, fully financed, offer in the next week.
News of the offer was pegged to emerge as early as Thursday, when the UK Government is due to host a summit on nuclear plants.
Hopes of a deal took British Energy up by 3p to 735p.
The FTSE 100 closed at 5,906.8, down 88.5, or 1.5 per cent, after yet more evidence of an economic storm came to the fore in the United States.
The US Labour Department said that the American economy lost 49,000 non-farm jobs in May, pushing the country's unemployment rate to 5.5 per cent last month from 5 per cent in April, the fastest growth in the numbers in more than two decades. The news struck Wall Street, which swiftly sunk in to the red, and in turn offset the strength among miners and oil stocks on the London benchmark. Fears of a sharper than expected economic slowdown also hit the FTSE 250, which lost 175.9, or 1.8 per cent, to 9,8343.3.
On the FTSE 100, oil stocks, bolstered by renewed strength in the price of oil, dominated the leader board. A note from Morgan Stanley, which was published earlier in the week and which predicts a spike to $150 per barrel in the price of crude by 4 July, also drove investors into the sector. Cairn Energy, the India-focused oil and gas exploration and production group, swung to second place on the blue-chip leader board, up 145p at 4,107p.
BG gained 29p to 1,256p and Royal Dutch Shell rose by 5p to 2,097p.
A similar story played out in the mining sector as firmer metals prices drove leading stocks. Xstrata, which drew additional support from some positive comment by Merrill Lynch, led the way and claimed first place on the FTSE 100, gaining 145p to 4,107p.
"The (re-)emergence of coal as a major profit source for Xstrata is quite exciting," the broker said, increasing its target price for the stock to 5,300p.
Merrill added that, despite the breakdown of takeover talks with Vale, sector consolidation will continue and "Xstrata will play an important role".
Merrill also gave a boost to Carphone Warehouse, which rose 6p to 243p. The broker said the expected launch of the new Apple iPhone on Monday "could be seen as a positive catalyst" and added Carphone to its list of most preferred European telecoms stocks.
"With the 2G stock pipeline now cleaned out, the market is clear for a launch. We believe the launch will be announced by Steve Jobs at his keynote speech on June 9 at the Worldwide Developer Conference in the US," added Merrill.
Standard Life was among the worst performers, losing almost 6 per cent or 15.5p to 246.75p after Deutsche Bank moved the stock to "sell" from "hold".
"The immediate outlook for the UK life [insurance] market is weak, already under volume pressure in 2008, and with a deteriorating economy potentially weighed down further by rising inflation," the broker said. "Though well positioned longer term, Standard Life is in our view one of the most exposed to a tougher UK sales environment near term, particularly in view of the sensitivity of its margins to volumes. On the back of this, we lower our new business profit forecast for 2009 by 8 per cent."
On the FTSE 250, the oil price rise hit Easyjet, which was parked at third place on the mid-cap loser board despite posting encouraging traffic figures for May. The stock closed down 7.73 per cent or 25.75p to 307.5p.
Moneysupermarket.com firmed 2p to 128.25p. The stock was boosted by positive comment from Citigroup, whose analysts said Google, which is reportedly planning on expanding its presence in the price-comparison arena, will be a "credible competitor", but Moneysupermarket's "scale, product reach and brand name position it relatively well [versus] its smaller competitors".
On AIM, OPG, the Indian power company which made its market debut last week, gained6.5p to 80.5p following rumours of a deal with the Tata Group. OPG has already entered into a memorandum of understanding with the Tata Power Trading Company to supply up to 49 per cent of the power generated from two if its projects.
Also on AIM, Indus Gas, an India-based oil and gas exploration and development company, made its market debut. The company raised £25m via a placing of 15.2 million shares at 164p apiece by Arden Partners. By the close, Indus had gained 39.5p. to 203.5p.