Market Report: Imagination is fired up by Amazon buzz

Here's a mouth-watering battle for you: Amazon versus Apple. One is the world's largest online retailer, and the other is the world's largest company ever (by market value), full stop. The two are of course already rivals – the former's Kindle Fire is seen by some as an "iPad killer" – while digital music is among the other areas they compete in.

However, the latest chatter has been boosting the notion that Amazon, which is headed by its founder Jeff Bezos, could next go after the iPhone. According to reports, the group is in late-stage talks about potentially snapping up the mobile chip operations of fellow US company Texas Instruments, giving a renewed impetus to speculation an Amazon smartphone could be on the cards.

Those getting most excited about the possibility in the City yesterday were punters in Imagination Technologies. The chip designer's technology may already be found in the iPhone and iPad, but, according to City scribblers, it would still benefit if Amazon took to smartphones.

Numis Securities' Nick James believes that if Amazon does buy the business from Texas, this would be "part of a strategy to continue to develop an integrated tablet and smartphone platform to rival Apple. In such a scenario we would expect Imagination to be a key partner to Amazon."

The analyst is so excited about the possibility that he decided it was time to start piling into Imagination, upgrading his recommendation on the stock to buy from hold. As well as highlighting its recent weakness – its share price had shed more than 25 per cent since its first-quarter statement last month – Mr James was also bullish over its graphics and communications technology.

With Eoin Lambe from Liberum Capital another scribe turning more positive on the company, removing his sell rating and replacing it with a hold, investors were quick to react to the change in mood as Imagination shot up 34.9p to 478.9p on the mid-tier index.

Meanwhile, Footsie rival Arm Holdings was also in favour, climbing 18.5p to 596p. Yesterday saw Microsoft announce its Surface tablet, which is powered by Arm, will go on sale in the US for $499.

Not that Apple is likely to rest on its laurels. The latest whispers suggest the rumoured "iPad Mini" could be unveiled next week.

The FTSE 100 was in fine form, advancing 64.93 points to 5,870.54 as hopes rose over the possibility of Spain asking for a bailout. The continuing stream of positive news from the US reporting season also helped, with investment banking giant Goldman Sachs beating expectations with its third-quarter results.

Among the London-listed banks, Lloyds – which, according to reports late Monday, now has the go-ahead to swap assets with its Scottish Widows life insurance business – was 2.44p better off at 42.76p while Royal Bank of Scotland and Barclays ticked up 11.9p to 280p and 9.25p to 246.1p.

Shares in Rio Tinto leapt after the miner said business was good despite a volatile market caused by uncertainty about Chinese appetite for metal. The group's iron ore output jumped to a record 52.6 million tonnes in the third quarter and it reiterated plans to lift production this year. Its shares rose 87.5p to 3,061p.

Meanwhile, the top spot went to Russian steelmaker Evraz, part-owned by Roman Abramovich, which bounced up 14.5p to 243.7p having shed more than 7 per cent over the previous two sessions.

Flying against the market, IAG was among the minority of blue-chip stocks to finish in the red. The owner of British Airways retreated 2.4p to 155.6p as Liberum's analysts slapped a sell rating on the company, arguing that restructuring its recent purchase, the Spanish airline Iberia, "will take time and money".

Down on the fledgling index, Record's investors were in the money after the currency manager shot up 30 per cent. The company closed 5.62p stronger at 24.5p following the news that its assets under management equivalents by the end of September had risen to $32.5bn (£20.2bn), up from $29.9bn three months earlier.