Market Report: Chinese whispers provide a boost for Xstrata

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The Independent Online

The Xstrata-Vale saga, as yet free from any substantial official indication about the nature, value or status of a formal approach, continued to advance on the strength of speculation yesterday.

Earlier in the week, reports suggested that the Brazilians, who were supposed to have offered around £40 per share for the business, had been spurned by the company and Glencore, which owns around 35 per cent of the Anglo-Swiss miner. Yesterday, following a temporary lull among speculators, early-morning murmurs suggested a new character had joined the cast – the Chinese, not content with 9 per cent of Rio Tinto, were rumoured to have approached Glencore with a sweeter, £48-per-share, offer for its stake, or, as different details emerged in different accounts of the story, at least a substantial proportion of its shareholding, in Xstrata.

The modus operandi remained unclear – are the Chinese after the company (buying more than 29 per cent could trigger a compulsory bid for the rest)? Or are they simply keen to stave off any consolidation among major miners? If news of the advance is true, some reasoned, the latter strategy, which was manifest in China's earlier move to block BHP Billiton's takeover of the rival Rio Tinto, appeared most plausible.

The chatter, while unresolved by the end of the day, lifted Xstrata out of the doldrums and took the company's stock up by 1.9 per cent, or 72p, to 3,852p.

Elsewhere, Sainsbury claimed third place on the FTSE 100 leader board. The stock was buoyed by rumours of fresh interest from the Qatar Investment Authority, which, after failing to take over the company last year, was supposed to have raised its stake in the supermarket giant from 25 to around 29 per cent. Speculation suggested the QIA had bought the shares from the property tycoon Robert Tchenguiz, who, it was mooted, may have made the disposal to finance a bid for pub group Mitchells & Butlers. The news took Sainsbury's stock up 2.63 per cent, or 9.75p, to 380p.

British Energy rose 9p to 542p despite denying reports that it was planning a £5.5bn break-up of its business and to set up a new company focused on building nuclear reactors.

British Sky Broadcasting rose by 1.2 per cent to 588p after analysts at Goldman Sachs upgraded the company's stock to a conviction "buy" from "sell".

Bullish broker sentiment also helped BT Group, which rose 2.43 per cent to 231.5p. Investec reiterated its "buy" recommendation on the stock, noting that the company's advertising partnership with Phorm would bring it additional share of online advertising spend and help it monetise its DSL subscriber base.

Causing less cheer among investors, Investec also reiterated its "buy" recommendation for Carphone Warehouse, which has also signed an agreement with Phorm. Carphone shares closed down 1.96 per cent at 313.25p.

The FTSE 100 index, after showing some strength during the day, closed down 0.80 points at 5,879.30. The benchmark index was dragged down by a weak early session on Wall Street, which registered losses following some bearish comments by the Federal Reserve chairman, Ben Bernanke. The FTSE 250, on the other hand, had a good day, up 93.1 to 10089.2.

On the FTSE 250, Barratt Developments suffered the fate of Premier Foods, which was hurt by speculation suggesting an emergency rights issue last Friday. The rumours centred on the company's £2.1bn acquisition of Wilson Bowden last year. At the time, the company took out a one-year, £800m, loan facility and, yesterday, investors were worried about its expiration. While a source close to the company denied an emergency issue was required to deal with the debt, pointing to an additional one-year rollover period after the initial term concludes in April, the market, anxious about the state of housebuilders against a depressing economic outlook, took 3.77 per cent off Barratt's stock, to 383p.

On the upside, Ladbrokes, the gaming and gambling company, climbed 2.72 per cent to 321.25p following rumours of a prospective private-equity bid. The idea has been mooted before, when some had proposed Apax as the likely suitor. While no suggestions about the identity of the bidder surfaced yesterday, whispers pegged the offer to around 370p per share.

Photo-Me topped the FTSE small cap index as investors continued to wonder about the intentions of ex-director Philippe Wahl, who recently increased his stake in the group. Photo-Me rose 14.17 per cent to 34.25p.

On AIM, shares in Faroe Petroleum, the independent oil and gas company, were boosted by speculation of stake-building by Dana Petroleum. The news was not entirely new, as an unnamed sector counterpart was supposed to be interested in the company earlier in the week. Faroe slicked 1p higher to 149p, while Dana rose 18p to 1,384p.

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