Market Report: Chinese whispers help BHP to hit new high

Stake-building rumours gave strength to BHP Billiton, the FTSE 100-listed miner, which soared to a record high of 2,139p yesterday.

The speculation focused on BHP's proposed takeover of Rio Tinto and suggested that a Chinese entity bent on interposing itself between the two miners was seeking to acquire a stake in the company.

Attention soon turned to Chinalco, the Chinese state-backed aluminium group which grabbed 9 per cent of Rio in a dawn raid in February.

At the time, Chinalco's move was read as an attempt to block the takeover and, following recent rumours of an enhanced offer from BHP, market talk suggested it may be on the prowl again, seeking to put another spanner in the way of a marriage of the miners.

By the close, BHP was up 98p at 2,118p. Rio was up 236p at 6,881p.

Consolidation hopes and a positive production report from Eurasian Natural Resources Corporation, which rose 99p to 1,476p, boosted the wider mining sector. Vedanta Resources was up 109p at 2,532p, Kazakhmys gained 72p to 1,809p, Xstrata was up 63p at 4,283p and Antofagasta added 16p to 773.5p

Overall, the FTSE 100 was up 4.1 at 6,216. The London benchmark was saved from the red by a strong start on Wall Street and by the miners, whose gains offset otherwise weak sentiment. A series of cash calls and concern about the outlook for inflation had kept the index in negative territory for most of the day. The FTSE 250 shed 96.8 points to 10,275.3.

The banking sector went south yet again as Bradford & Bingley, off14.75p to 144p, unveiled a £300m rights issue. Barclays fell 10.5p to 427.25p, HBOS lost 14.75p to 470.25p and Lloyds TSB was down 7.5p at 410.5p.

Alliance & Leicester was also weak, shedding 13p to 445.75p, as analysts weighed in on the bank's recent interim management statement; Collins Stewart cut its 2008 dividend forecast by 30 per cent, while Merrill Lynch reduced its estimate by 41 per cent, from 55p to 32.5p.

Rights issue news also hit transport companies – FirstGroup, the bus and train operator, unveiled a £236m fund raising. As a result, its stock fell by 6.26 per cent, or 37.5p, to 561.5p, claiming first place on the FTSE 100 loser board and dragging down its peers on the FTSE 250. National Express lost 38.5p to 938p, Arriva was down 27.5p at 677p and Stagecoach lost 8.5p to 246.75p.

On the FTSE 100, M&A rumours were evident around Carphone Warehouse, which nonetheless lost 2p to 258.25p. The speculation suggested that Vodafone, which has been rumoured to be interested in Carphone's broadband business before, may make an offer for the division if it loses out in the battle to acquire Tiscali, the Italian internet service provider. The rumours added that, following a resolution of the Tiscali saga, other unsuccessful bidders may also turn their attention to Carphone. Vodafone gained 0.2p to 163.1p

On the FTSE 250, the newspaper publisher Johnston Press announced a £212m rights issue to strengthen its balance sheet in the face of deteriorating advertising revenues.

Reacting to the news, Landsbanki revised its rating on the stock to "hold" from "buy". "Certainly the stress in the group's current capital structure and deterioration of advertising revenues are beyond our and the market's expectations," the broker said.

Johnston Press slumped 20.5p to 115.25p, claiming first place on the mid-cap loser board.

Barratt Developments was down 8.75p at 248.5p after issuing a cautious interim management statement. Despite its weakness, the housebuilder avoided a steeper fall with the market relieved that, contrary to earlier speculation, it did not announce a rights issue to beef up its balance sheet.

There was no such foil to support the remainder of the sector, which continued to lurch downwards.

Taylor Wimpey was down 6.25p at 127.75p, Bellway lost 30.5p to 718p and Bovis Homes was 10p weaker at 458p.

The food retailer Greggs was also weak, losing 10p to 4,345p, as investors remained wary of the stock following the company's recent trading update.

"While Greggs seems to be successfully negotiating the rising commodity price environment, we believe the statement shows its volumes are not immune to consumer pressures and high-street footfall," said Citigroup, whose analysts weighed in on the matter, keeping their "sell" recommendation for the shares.

On AIM, Absolute Capital was up 6p at 41.5p after investors reacted positively to its proposal to demerge its Argo Business. The company said it would apply for Argo's shares to be admitted to trading on AIM within six months of the demerger, which is scheduled to be approved at an extraordinary general meeting on 13 June.