Market Report: Cairn soars after rumours of bid from ENI

Cairn Energy, the Edinburgh-based oil and gas exploration and production company that has various interests in the Indian subcontinent, was the talk of the town yesterday.

The speculation, which took Cairn to an intra-day high of 3,006p, centred on ENI, the Italian energy giant, which was said to be mulling a 4,000p-per-share bid for the company.

ENI has a history of acquiring independent oil and gas companies, including British-Borneo and Lasmo. Most recently, near the end of 2007, it claimed Burren Energy, a UK-based oil producer with operations in Turkmenistan, Congo, Egypt and Yemen.

So, would an offer for Cairn make sense? "You don't need to stretch your imagination to think it may happen," said one market source, adding: "Cairn's fields in India are quite complicated. The sort of engineering work required to extract oil needs someone with more expertise and more resources than Cairn. Selling into ENI, which has some serious engineering capability, would therefore make sense. Without the support of a bigger group, asking Cairn to make the most out of what is clearly a lucrative find is like asking Ken Livingstone to run the London Underground – it's not likely to work very well!"

ENI refused to comment on the market speculation and Cairn, which is expected to publish its results at the end of this month, closed at 2,989p, up 8.06 per cent or 223p, at first place on the FTSE 100 leaderboard.

Elsewhere, fading bid hopes hurt Xstrata, which shed 92p to 3,742p following reports that a recent slump in Vale's share price had wounded the Brazilian miner's gambit to take over its Anglo-Swiss rival. Analysts at FinnCap, while maintaining a bullish stance on the mining sector on a one-year view, further stimulated the sell-off by revising their recommendation on Xstrata to a short term "sell" from "buy".

Overall, the FTSE 100, which rose 61.3 points to 5,690, finally climbed into the black after key central banks, including the Bank of England, announced a new round of co-ordinated auctions to mitigate the liquidity squeeze in the financial markets. The news also helped ensure a good day for the banking sector. Barclays was the strongest performer, rising to third place on the leaderboard at 437p, up 21.25p. Others in the sector including the Royal Bank of Scotland, which rose 14.75p to 344.75p, HBOS, which rose 27.5p to 589.5p, Standard Chartered, which rose 48p to 1,626p, and Lloyds TSB, which rose 12.25p to 433.25p, were also buoyant.

Food retailers were less successful following a note from Morgan Stanley, which revised its industry view to "cautious" from "inline". The bank said it harboured "strong misgivings that UK food retail will be the safe haven that many hope", cutting its target price for Tesco to 345p from 365p, sending its stock down 7.5p to 403p, and also reducing its target prices for Sainsbury's to 345p from 380p, sending its stock down 0.5p to 339.5p, and WM Morrison to 300p from 330p, sending its stock down 2p to 291.5p.

Airlines were down after the Civil Aviation Authority increased airport landing fees at Heathrow and Gatwick. The news saw British Airways fall 3.75p to 238p, while easyJet was down 13.5p to 397.5p.

Cadbury Schweppes was up almost 4 per cent or 21.5p to 561p after setting a timetable to demerge its American beverages and confectionary business. A shareholder meeting to approve the move will be held on 11 April and the unit is expected to list on the New York Stock Exchange on 7 May.

On the FTSE 250, Old Speckled Hen brewer Greene King rose 0.48 per cent or 3p to 626p following rumours of a possible bid. The talk bore few details – there was no indication of the price of the prospective offer, nor were there any clues to the identity of the suitor.

Brit Insurance rose 4.86 per cent or 10.5p following some positive broker sentiment from Citigroup, which said: "Following a 30 per cent share price decline the past six month we view the valuation appeal of Brit's shares as compelling and upgrade our rating to Buy [from Hold]...".

JD Wetherspoon, on the other hand, suffered after Citigroup cuts its price target for the stock to 280p from 400p. The company's shares were down 1p to 265p yesterday.

On AIM, Computerland gained a spectacular 27.43 per cent or 56.5p to 262.5p after news of a recommended 270p-per-share offer from Capita, the support services firm.

Lighthouse, the independent financial advisor, was up 2.22 per cent or 0.5p to 23p after agreeing to merge with sector peer Sumus. The enlarged group, which be formed after Lighthouse acquires Sumus for 42.3p per share, will have pro-forma turnover in excess of £80m and estimated net assets of £22m.

Sumus shares closed up 1.19 per cent or 0.5p at 42.5p as a result.