Market Report: Invensys gains as rumour mill whirs into motion

Invensys made gains as speculators, emboldened by the recent increase in deal activity, touted rumours of bid interest last night.

The London market has been buoyed by news of a number of approaches across a variety of sectors in recent weeks. Reckitt Benckiser's move on SSL International, the revival of tie-up talks between International Power and France's GDF Suez and, beyond the FTSE 100, approaches for Tomkins and Dana Petroleum, for instance, have sparked hopes of a revival in mergers and acquisitions. Somewhat predictably, the hopes have spurred the market rumour mill, with speculators highlighting the likes of Man – the London-based hedge fund group which has been mentioned as a possible target for the Bank of New York Mellon – and Telecity – the data centres specialist which is said to be in the sights of an American peer – as potential targets.

Invensys, which was boosted by the read-across from Tomkins earlier in the week, joined the roster of possible preys last night, with the rumour mongers putting forward theories of interest from Siemens, the German engineering conglomerate. The chatter was vague – there were clues about the possible bid price or, for that matter, about timing – but, given the recent upturn in deal activity, was enough to drive Invensys up by 5.2 per cent or 14.5p to 295p. Elsewhere, Reckitt was 7p down at 3,293p, SSL International was 7p up at 1,184p, International Power lost 3.7p to 358.1p, Tomkins ended 7.2p ahead at 307.2p, Man was 2.7p higher at 217.9p and Telecity was 3.4p better off at 425.2p. Dana Petroleum, which was cut to "neutral" at Goldman Sachs, was 29p stronger at 1,505p.

Overall, the markets rallied, with the FTSE 100 gaining 99.17 points to 5,313.81 – closing above the 5,300 point mark for the first time since May – and the FTSE 250 ending at 10,003.18, up 156.88 points. The strength was down to the heavily weighted mining and oil issues, which gained ground on the back of some better-than-expected European economic data. This cheered metals prices, which in turn drove the mood around the likes of Kazakhmys, up 57p at 1,163p, Anglo American, which closed at 2,477.5p, up 68.5p, and Antofagasta, which rose by 27p to 1,008p amid hopes that demand would improve.

The banking sector was in focus as traders awaited the release of the European stress test results. The Committee of European Banking Supervisors is due to publish the details later today and, ahead of the release, the market was abuzz with speculation about possible winners and losers. Hopes that the bigger banks will past the tests led to a broadly positive performance in London, with Barclays rising by 13.4p to 303.65p and Lloyds adding 2.57p to 63.58p. Royal Bank of Scotland was held back, however, easing by 0.4p to 44.7p as UBS scaled back its target price for the stock to 51p from 52p.

"We think the market has underestimated the scale of the task being undertaken at RBS and that 'rebuilding' may be a better description than 'restructuring'," UBS said, sticking with its "neutral" view on the state-backed lender's stock. "Years of underinvestment are being addressed and the franchise fundamentally repositioned across all business areas."

The outsourcing group Capita was in favour, gaining 27p to 737p after posting half-yearly results. Traders cheered as the company pointed to a strong bidding pipeline, with the news offsetting the impact of more cautious comment from Cable & Wireless Worldwide earlier in the week. The telecoms group, which was 3.05p ahead at 68.75p last night, had sparked worries about the impact of government cuts when it issued an interim management statement on Tuesday, warning that trading had been hit by a slowdown in the UK public sector.

Further afield, Brit Insurance was firm, edging up 8.5p to 908p, as the market wondered when Apollo, the US buyout firm whose bid approaches have been spurned twice by the Lloyd's of London insurer, would return with a revised proposal. UBS said that though over a month has passed since Apollo's first approach, a deal is still likely as the revised 1,050p offer "was not too far from the 'right price'". "Meanwhile, we believe downside will be limited as we do not expect Brit to trade down to pre-bid levels," the broker said, reiterating its "buy" recommendation while scaling back its target for the stock to 965p, compared to 978p previously.

The billing firm Intec Telecom Systems failed to make any headway, ending the session at 50p, down 1.25p, on the read-across from US peer Amdocs, which issued third-quarter results overnight. Revenues were at the bottom end of expectations and Amdocs also announced a marginal reduction in its guidance for the fourth quarter. "Amdocs blamed relative weak spending trends within Europe for the downgrades to expectations," the broker said.

Altium stuck to its "buy" view, however, saying: "This is very much in line with the fragility in the telecom market that Intec reported at its interims at the end of May and gives us confidence that the weakness is not a company specific issue."