Market Report: LSE soars 7% as Deutsche Börse prowls

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The London Stock Exchange itself was the subject of the juiciest rumour yesterday, as gossip that its German rival Deutsche Börse was again looking to buy the group spread around the markets.

The Bourse has long coveted the London exchange, and new interest from Berlin can hardly be a surprise with the LSE's new chief executive, Xavier Rolet, barely having time to get his feet under the desk. The LSE was close to the top of the FTSE 100 pile, climbing 6.5 per cent to 860.5p with the new interest from Deutsche Börse set to test the mettle of Mr Rolet early in his tenure.

The LSE's climb helped the FTSE 100 to continue its impressive form of the last few weeks and set another 11-month high as racier stocks replace defensive punts as the preferred bets. The index of leading shares was up 82 points to 5124.13.

"At the moment it seems that for every investor suffering a moment of doubt about the long-term prospects of this economic recovery, there are another two who are willing to buy into the smallest sign of weakness and keep stock markets on the up," said David Jones, chief market strategist at IG Index. "Nevertheless, today's jobless data highlighted the extent of the damage that this economic storm has left in its wake, but did not impact strongly on the market."

Tullow Oil finished top of the FTSE 100 leaderboard on a heady mix of takeover talk and oil finds. The group's stock closed the day up 9.2 per cent at 1187p after it confirmed reports that the company has struck oil at its exploration well on the so-called Venus prospect off the coast of Sierra Leone. Analysts at Panmure Gordon point out that the discovery will produce 250m barrels of oil, and that the group has just a 10 per cent stake in the interest. "However, this has implications on the rest of Tullow's exploration portfolio, and could prove to be a transformational discovery."

The shares have also been excited by reports that the Italian oil and gas giant Eni is considering a bid for the group, possibly in the £20-a-share region, which has interests in Ghana and the increasingly dicey Uganda.

A number of natural resources groups, many of which have soared on the gradually increasing price of commodities, also propped up the rise in the benchmark index. Xstrata, whose nil premium "merger of equals" bid for Anglo American appears not yet to have attracted sufficient support among Anglo shareholders, was one of the more impressive gainers, up 3.4 per cent at 979.5p after analysts at Royal Bank of Scotland upped their price target to 1050p from 625p. "The [third-quarter] mark-to-market change for copper so far is 46 per cent, so we anticipate further upgrades across the sector in the coming weeks," the broker says, adding it "would look to build Xstrata positions going into 2010".

Xstrata has also been rumoured to be interested in a return bid for Lonmin, the world's third biggest platinum producer. Lonmin closed the day up 4.5 per cent at 1831p, while Anglo enjoyed a 2.7 per cent rise to 2124.5p.

The gold miners were also in vogue as the price of the shiny stuff surged past $1,000 a troy ounce. Randgold Resources was the biggest riser among the gold diggers on the index, closing the day up 5 per cent to 4556p.

After a ropey day on Tuesday, when it was among the FTSE 100 laggards, Next was one of the index's leading shares yesterday after bucking the downturn and raising its full-year guidance following a 6.9 per cent jump in interim profits. The fashion group closed up 6.8 per cent at 1815p.

There was some less welcome news for some of the grocery chains as both J Sainsbury and Tesco ended the day in the FTSE 100's bottom 10, falling 0.4 per cent to 331.7p and 0.6 per cent to 389p respectively.

The share prices of both, but especially Sainsbury's, have suffered in recent months as investors have looked to reduce their exposure to perceived safe stocks, and move to more cyclical punts. Tesco Property Finance 2, a vehicle used to issue commercial mortgage-backed securities, also launched a £559.1m bond yesterday.

Smiths Group, the engineering company, continued its unimpressive form of the last few days. The group finished bottom of the FTSE 100 pile yesterday, down 2 per cent at 862p, after falling by 1.5 per cent yesterday. The group has suffered from a negative note from Morgan Stanley: the watchers raised their target price for Smiths to 850p from 825p, but say that following a 30 per cent increase in the firm's share price in the last three months, "its attributes of top-line resilience and self-help potential are now largely in the price".

The FTSE 250 continued its equally impressive charge, finishing the day up 141 points at 9305.24. The bus company Arriva was one of the gainers after the experts at Morgan Stanley raised their price target for the group. Investors did not entirely follow the advice, with yesterday's jump taking the share price well above the broker's 480p target. Arriva jumped 5.4 per cent to 508p.

The casualty numbers were low on the FTSE 250. One of those in the red was the homewares retailer Dunelm, down 2.7 per cent to 301.6p on profit-taking after gains yesterday following good results.