Market Report: Rumours of US bid interest keeps 3i ahead

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The Independent Online

As the blue-chip index finished in the red for the first time this week, 3i managed to keep its head above water yesterday thanks to mutterings the private equity investor could attract bid interest from across the Atlantic.

A rally in the last hour of trading meant the company – whose portfolio includes the fashion retailer Hobbs – ended 0.7p ahead at 208.3p despite touching a low of 204.4p, as vague rumours suggested one of the larger US private equity groups may be considering an approach worth at least 300p a share.

Traders played down the chatter, which was not the first time there has been speculation 3i could be a potential bid target. Back in May, Oriel Securities' Iain Scouller said the recent weakness in the group's share price meant it could receive an approach if it continued to "trade on a sizeable discount... for a period of time", and since then its share price has dropped a further 20 per cent.

Although the FTSE 100 spent most of the session flirting with the idea of a fourth straight day ahead, a late slump meant by the bell it was 74.75 points weaker at 5,131.1. While poor jobless claims data from the US did not help, the real damage seemed to be done by vague rumours claiming not only was Germany about to broaden its short-selling restrictions but that the country was also facing a credit rating downgrade – both of which ended up being denied.

The banks, however, managed to buck the trend, with Lloyds Banking Group and Royal Bank of Scotland advancing 0.88p to 30.99p and 1.21p to 23.08p respectively while Barclays ticked up 8.3p to 157.9p. The latter was chosen by Morgan Stanley as its favourite of the three, and the broker said it was the best placed to deal with the repercussions from next month's report by the Independent Commission on Banking.

With the world's central bankers meeting today in the US, the sector was also helped by the news that Warren Buffett's Berkshire Hathaway is investing $5bn (£3bn) in Bank of America, and Guardian Stockbrokers' Atif Latif said the move "gives a sign of confidence in both the US economy and financials in the US".

Shire was on its sickbed after the drug maker's major skin substitute product, Dermagraft, failed a late-stage clinical trial. The pharmaceutical group had hoped it could be used on venous leg ulcers as well as diabetic foot ulcers, which it already treats, yet it has now abandoned this idea.

With Jefferies' Peter Welford estimating that if successful the new use for the product could have ended up doubling its sales, Shire dropped to an intraday low of 1,904p. Yet the news that its Firazyr drug – used to treat the rare genetic disease hereditary angioedema – had been given the green light by the US Food and Drug Administration prompted a minor rally and it ended 57p lower at 1,955p.

The wooden spoon was claimed by Admiral for the second session in a row, meaning the insurer has now lost nearly 17 per cent since announcing its first-half figures on Wednesday. Oriel Securities' Marcus Barnard revealed the company had suggested bizarrely to analysts that they "compare [it] with a selection of Clint Eastwood movies", so, cutting his advice to "sell", he suggested "Tarantino would have been a better comparison".

With new data from the Nationwide Building Society showing consumer confidence in July dropped to its lowest level for three months, Marks & Spencer slipped 14.7p to 316.1p while B&Q-owner Kingfisher jumped down 7.9p to 223.3p.

The latter was actually praised by Espirito Santo as one of its top picks in the sector, along with Next, which moved 37p lower to 2,243p. The broker meanwhile downgraded Dixons' rating to "neutral" and kept its advice on Home Retail as a "key" sell, and the two slid 0.13p to 11.72p and 0.8p to 125.8p on the FTSE 250.

The talk among the technology companies was dominated by the news late on Wednesday that the co-founder of Apple, Steve Jobs, was leaving his position as chief executive. Although the US giant's shares dipped on Wall Street, some in the UK sector were faring rather better with AZ Electronics – which provides chemicals for the iPad – powering up 15.9p to 226.9p as it announced its first-half revenue rose 22 per cent.

However, another Apple supplier, Arm Holdings, eased down 1.5p to 528.5p after UBS removed it from its "key calls" list. The chip designer has benefited this week from being the subject of reheated bid rumours, as has Pace, but yesterday the set-top box manufacturer retreated 4.5p to 99.6p.

A profit warning from Topps Tiles saw the flooring retailer lose nearly 30 per cent of its share price, as it plummeted 13.5p to 33p on the small-cap index. In July the group revealed its like-for-like sales in the third quarter had fallen by nearly 2 per cent, and yesterday it said things were even worse, prompting Peel Hunt to cut its rating to "hold" from "buy".

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