Bid talk boosted the software group Misys, which surged to the top of the FTSE 250 yesterday.
Traders cited speculation of a 210p to 220p-a-share bid from Switzerland's Temenos or India's I-Flex Solutions, both of whom specialise in banking software.
Some market sources remained unconvinced – it was suggested either suitor was unlikely to bid for the entire group, which includes a healthcare division. Instead, any proposal from Temenos or I-Flex was pegged to focus on the company's banking arm, which services some of the biggest banks in the world. The talk took Misys up 10.5p, to 178.25p.
Elsewhere, renewed bid speculation gave a boost to Rio Tinto, which rose 236p to 6,645p, claiming first place on the FTSE 100 leader board. Late rumours suggested BHP Billiton, which previously offered 3.4 of its own shares for each Rio stock, may make an enhanced offer of 3.8 shares for one, raising the stakes in its bid to acquire the company. BHP Billiton closed up 27p at 2,020p.
Kazakhmys, on the other hand, lost 38p to 1,735p after Eurasian Natural Resources Corporation – up 41p to 1,377p – said it will not make an offer for its Kazakh peer.
Overall, the FTSE 100 was down 8.7, or 0.1 per cent, at 6,211.9 yesterday. UK blue-chips were pushed off course by worse-than-expected writedowns at Alliance & Leicester and a grim reading on UK inflation, which bore on hopes of another reduction in interest rates. According to the Office for National Statistics, soaring food and fuel costs took annual inflation to 3 per cent in April, up from 2.5 per cent in March and within striking distance of the 3.1 per cent level that would force the Bank of England Governor, Mervyn King, to write a letter of explanation to the Chancellor.
A report from the Royal Institution of Chartered Surveyors, which revealed yet more surveyors reported house price falls in April, and from the British Retail Consortium, which said UK retail sales values continue to lurch downwards, further dampened investor sentiment.
As fears for the economy mounted, the retail sector slumped. The high-street clothing chain Next lost 43p to 1,266p, while the B&Q owner Kingfisher came off the speculative rally path, closing down 3.2p at 148.5p. Home Retail Group lost 7p to 259.75p, Debenhams was down 3.25p at 63.75p and Marks & Spencer was 7p weaker at 398.5p.
The news of writedowns at Alliance & Leicester, which lost 51.75p to 458.75p, drove the banking sector into the doldrums. News of a cash call by Crédit Agricole, France's biggest retail bank, also bore on investors. HBOS was down 20.5p at 485p, Lloyds TSB lost 6.75p to 418p, Barclays was down 7p at 437.75p and Royal Bank of Scotland lost 7p to 337.75p.
On the FTSE 100, ITV remained weak, losing 2.3p to 64.5p, after Goldman Sachs downgraded the stock to "sell". "While consensus has begun cutting forecasts for several broadcasters, estimates for ITV remain considerably too optimistic," the broker said, citing its expectation of a "severe" second-half advertising slowdown.
Land Securities lost 9p to 1,468p after UBS downgraded the stock to "neutral" from "buy" ahead of the company's final results, which are due today. "We expect NAV to have fallen 13 per cent to 1,960p," the broker said, noting the continuing deterioration in the property market. "The group made a number of profitable sales in [the third quarter], but we assume values have fallen 11 per cent and that values will fall another 10 per cent in 2008-2009."
A bearish broker report also hit Smith & Nephew, which lost 10.5p to 542.5p. JPMorgan dealt the blow, downgrading the stock to "under-weight" from "neutral", and reducing its price target to 585p from 680p. "With inherently risky, acquisition-driven growth, weakening fundamentals in several business lines and a relatively weak balance sheet, Smith & Nephew deserves a discount to its peer group," the broker said.
On the FTSE 250, renewed rights issue rumours hurt Barratt Developments, which was down 18.25p at 257.25p. While noting the rumours, traders pointed to weakness in the wider sector as the main cause for the slump in the stock – rival house builder Redrow, which lost 22.25p to 270.5p, triggered a sell-off after issuing a disappointing update. Bovis Homes was down 14.5p at 468p while Bellway lost 22p to 748.5p.
The conference and trade exhibition organiser ITE gained 8.75p to 164p after ABN Amro revised its rating on the stock to "buy" from "add". "We believe ITE will deliver strong underlying [first half] figures on 19 May, while the prospects for [the second half] are increasingly positive," the broker said.
On AIM, renewed bid speculation took Blinkx up 6.25p to 35.75p. Talk of a bid from either News Corporation or Google kept the stock firm.