Market Report: Sainsbury's lifted by talk of fresh Qatari move

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The Independent Online

J Sainsbury was firm yesterday after market speculation suggested that the Qataris would soon make a second attempt to acquire the supermarket chain.

Delta Two, an investment vehicle backed by the cash-rich Arab emirate, decided not to proceed with an offer for the company last year. Its failure triggered a six-month waiting period under the UK Takeover Panel rules, precluding it from making another bid. The clock runs out early next month and, according to the recent rumours, Delta Two is set to raise its 25 per cent stake in Sainsbury's before another offer proposal.

"Although I won't expect it, [a bid] is possible again. And they may be successful with a lower price," said Andrew Wade, an analyst at Seymour Pierce.

"A year ago, everyone was more bullish about Sainsbury, but these things tend to happen in cycles and it's probably fair to say that they are not as loved right now," he added.

There is an alternative explanation for the share price rise – a significant amount of Sainsbury's stock is believed to be out on loan and the increase may have been triggered by short-covering (the buying of shares to close an open or short position) among some traders. By the close, Sainsbury's was up 4.75p to 364.25p.

Overall, the FTSE 100 remained weak, shedding 6.30 points to 5,983.90 before the Bank of England Monetary Policy Committee interest rate decision today. Most analysts expect the Bank to trim its UK interest rates by 0.25 percentage points to 5 per cent. The FTSE 250 was down 36.90 points at 10,071.80.

Expectations of a rate cut kept most housebuilders in positive territory. Persimmon was up 3p to 690p on the FTSE 100. FTSE 250-listed peer Taylor Wimpey was up 1.50p to 171.50p. The company benefited from a positive assessment by Goldman Sachs, whose analysts upgraded the stock to "neutral" from "sell". "Despite continuing to hold a negative fundamental view of UK and US housing, we now believe Taylor Wimpey's shares are fairly valued given (1) its recent share price performance, and (2) the recent rally in US housebuilding stocks," the broker said.

Other housebuilders, including Bovis Homes, which gained 2p to 565.50p, and Bellway, which rose by 4p to 821.50p, were also up.

The banking sector, on the other hand, remained weak before the MPC dec-ision. HBOS, which lost 23p to 526.50p, was down after Credit Suisse lowered its rating on the stock to "underperform" from "neutral". Alliance & Leicester was down 5.50p to 526p, while Barclays lost 7.25p to 470.50p. Royal Bank of Scotland was also down, weaker by 5p at 369.25p, as was Lloyds TSB, which lost 2.75p to 454.25p.

Elsewhere, persistent stake-building rumours and a jump in base metal prices gave strength to the miners. BHP Billiton remained strong on the back of rum-ours that the Chinese were about to snap up a significant stake in the company. The stock rose 42p to 1,804p. Xstrata, which added 18p to 3,972p, and Vedanta Res-ources, which was heavier by 63p at 2,332p, were also strong. Rio Tinto gained 99p to 6,000p, reaching the amount per share that was paid by the Chinese during their dawn raid on the company's stock this year.

Cairn Energy was the top FTSE 100 riser, up 127p at 2,960p, after the market heard that the company's Indian oil pipeline is on track for completion by the time it starts production at its fields in the country, killing earlier speculation that Cairn may face delays at the project.

On the FTSE 250, Enodis, the kitchen equipment manufacturer, rose 10p to 151.50p after renewed bid speculation. Late rumours suggested the company was about to be subject to an offer from a US rival. After the market closed, Enodis confirmed the speculation. The company said it had received an indicative 260p-per-share proposal from Manitowoc, the US peer that has attempted to acquire the business in the past.

The pub group Marston's was up as Citigroup upgraded its stock to "buy" from "hold" in a pubs, clubs and restaurant sector review. "It takes a contrarian or long-term investor to embrace the bull case [for the sector]," the broker said, adding: "The smoking ban will fall out of comparatives in July and comps may get easier (after April/May) due to poor summer weather in 2007." Marston's rose 3p to 203.50p

On AIM, Climate Exch-ange lost 36p to 1,655p after Morgan Stanley lowered its rating on the stock to "equal weight" from "overweight". "We continue to view Climate Exchange as a long-term play with considerable optionality to our £30 bull case, but see limited catalysts for further short-term performance," the broker said.

Coal of Africa was up 2p to 1,07.50p before Blue Oar Securities' inaugural Resources Conference, due to be held today. The company is expected to make some very bullish remarks about the prospects for coal mining in Africa.