Market Report: Drax powered up by Centrica bid rumours

There was bid talk in the utilities sector yesterday. The British Gas owner Centrica was said to be on the hunt, while the electricity company British Energy and Drax, which owns and operates the largest coal-fired power station in the UK, were cast as the likely prey.

The chatter mounted throughout the afternoon and, while the talk bore no clues about which company was a more likely target, by the end of the day the market appeared to have made up its own mind.

British Energy failed to generate any mileage out of the speculation, and its shares closed down 16p, or 2.72 per cent, at 572.5p; while Drax powered 38p, or 7 per cent, higher to 579.5p on the back of the rumours. Centrica closed down 0.25p at 323.25p.

It was an unremarkable day for the FTSE 100. After braving its way through the 6,000 mark earlier in the week, the index was down 110.8 points, or 1.82 per cent, to 5,965.70.

Downbeat results, most notably from Rentokil Initial, and a pair of depressing economic indicators in the US, which weighed heavily on Wall Street, conspired to wound the London benchmark. Rentokil Initial was by far the biggest blue-chip faller, slumping 24.5p, or 23.33 per cent, to 80.5p, after it issued a profits warning in its final results.

The FTSE 250 was also down, falling 190.3 points, or 1.83 per cent, to 10,230.80.

In the mining sector, Xstrata was down following reports that its Brazilian rival Vale, which had been pegged to take over the company, had failed to win the support of its largest shareholder. Glencore, which owns around 35 per cent of the Anglo-Swiss miner, is supposed to have walked away from the negotiating table after Vale failed to meet its demand regarding extensions to certain, lucrative, marketing rights.

Fears that the deal, which if successful would lead to the formation of the world's largest mining company, was on the verge of collapse took Xstrata's stock down by 168p, or 4.1 per cent, to 3,969p.

Anglo American, which was mentioned as a likely counter-bidder for the company earlier in the week, was down, 28p to 3,302p, while sector counterpart Kazakhmys lost 10p to 1,579p, despite some positive sentiment from analysts at Credit Suisse, who upgraded their target price for the stock to 2,200p from 2,000p.

The bears reigned in the banking sector, again. HBOS, which triggered the end of a sector-wide rally with some disappointing results on Wednesday, was lodged at the bottom end of the table on the FTSE 100. Weary investors were jolted with fresh speculation that the bank was on the verge of revealing losses of between £2.5 and £5bn on its ABS (Asset-backed securities) book. The rumour met with a mixed reception, and, while many questioned its provenance, the perception of fresh damage further depressed HBOS shares, which were down 22p to 635p.

Alliance & Leicester was, however, the worst of the lot. Speculation that Lloyds (or, according to some less convincing chatter, Standard Chartered) was mulling a possible bid had earned some dividends for the embattled bank, which claimed the top spot on the FTSE 100 at the start of the week. As the speculation dissipated, A&L's share price slumped by almost 5 per cent to 565p.

Standard Chartered also fell, losing 13p to 1,685p, despite a positive report suggesting that it had bought a stake in some Indian banks. Lloyds TSB fell 12.75p to 463.5p, and Barclays was down 19.5p to 500.5p.

On the FTSE 250, late-afternoon rumours suggested that a fresh bid for the engineering group FKI was due to emerge soon. The company has been at the centre of takeover talk since Melrose was reported to have made an offer of 69p per share. Blackstone is also believed to have considered making an approach.

Last night's speculation did not bear any clues about the identity of the suitor, nor was there any indication of the likely offer price. It did, however, help FKI shares close flat at 69p, after spending most of the day in the red.

On AIM, Leed Petroleum rose following a positive drilling report. The company said it had successfully drilled the secondary target zone on the Eugene Island A-6 well in the Gulf of Mexico. Leed continues drilling to penetrate the third target zone. The news helped Leed's shares climb 5p to 40.50p.

Also on AIM, Plantic Technologies gained 3.5p to 43p after a string of positive announcements. The company, which manufactures biodegradable plastic, said that the US-based industry body BPI had approved its sheet resin, that the patent protecting one of its manufacturing processes had been secured, and that the Federal Drugs Administration had pronounced its product as safe for contact with food.