Market Report: Takeover rumours bring relief to mining firms

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The Independent Online

Mining takeover chat was in vogue yesterday, saving the sector from a third day of losses.

Xstrata leapt yesterday as talk intensified that Vale, the Brazilian group formerly known as CVRD, was to slap a firm bid on the table.

The rumoured offer, which was previously mooted at the start of last month, sent Xstrata up 8.59 per cent to 3363p, at the top of the leaderboard.

Should Vale bid, it could spark a takeover battle with Anglo American, which was rumoured to have held talks with Xstrata over the past two months.

Another rumour to boost the miners yesterday was that BHP Billiton was set to unveil a firm (and increased) bid for Rio Tinto as early as tomorrow. The talk sent Rio up 4.93 per cent to 4700p at the close.

There were a few whackier bid stories out there, which had one trader sighing: "You know it's Friday." The first was talk of an age-old sector mega-merger with GlaxoSmithKline supposedly looking at AstraZeneca. The rumours were quickly dismissed, but Astra remained strong following support from Morgan Stanley. The broker said it could well win market share with its cholesterol-busting drug.

While we're delving into the past, Marks & Spencer rose 3.82 per cent to 41.5p, on a rumour that Philip Green was stake building. The story was promptly denied, but the shares remained up at the close.

Yesterday's session was a fitting end to a volatile week. An early morning slump was quickly forgotten as the top tier stormed up 128.5 points on hopes of a forthcoming interest rate cut by the Federal Reserve in the US. It waned in the afternoon to close 0.7 of a point lower at 5901.7, following Wall Street's lead into the red.

The London Stock Exchange has endured a torrid start to the year, falling from record highs of 1979p to 1614p. Yesterday, the day it announced it had opened a representative office in Beijing, it ended up 3.97 per cent at 1650p.

The retailers had a mixed day following Carphone Warehouse's numbers. The group saw sales lift 3.1 per cent over Christmas, which initially sent its shares up. It retreated in the afternoon to close down 2.75p at 302p.

The financial stocks suffered yesterday, with asset manager Schroders giving up 3.52 per cent to 1041p in the wake of New Star Asset Management's profit warning.

A weakness in the banks could be traced back to a damning note from JP Morgan. The broker cut its earnings per share estimates for the sector by 9 per cent this year. It blamed factors including constrained asset growth following balance sheet de-leverage, weakness in UK commercial real estate, and falling profit before tax. Barclays was hit the hardest, despite being one of JP's more favoured stocks, falling 3.43 per cent to 450p.

On the second tier Aveva Group was flying high, up 11.03 per cent to 906p. The group, which makes engineering data and IT systems, reported that results for the full year will be "significantly ahead of its expectations". Dresdner Kleinwort upgraded its earnings per share estimates by 30 per cent for this year on the news.

Northern Rock rebounded on news that the Virgin Group-led consortium would up its bid. It rallied almost 10 per cent but couldn't hold the gains. It closed up 2.38 per cent at 64.5p.

Story of the day on the mid caps was not positive, however. Propping up the second line was New Star, which shed almost a third of its value on a devastating trading update. The shares spiralled 31.12 per cent to 101.25p on issues including poor investment performance, net fund outflows increasing and a highly leveraged balance sheet. Citigroup cut its recommendation to sell on the news.

Amid the small caps, investors were banking on a brighter future for SCI Entertainment, the computer game company responsible for Lara Croft's Tomb Raider franchise and Hitman. The problems dogging the group of late – including failed bid talks and product delays – were forgotten as the shareholders baying for management blood, were sated. SCI announced yesterday that chief executive Jane Cavanagh had departed along with two managing directors. The shares closed 46.88 per cent to 70.5p.

It was a happy day for fashion brand management group Marchpole Holdings, which humped 11.59 per cent to 38.5p after it settled a dispute with designer Ozwald Boateng's company Bespoke Couture.

Buyers were lighting up their silver screens with glee at Cineworld Group's trading statement. The cinema group said admissions had grown 4.8 per cent last year, sending its shares up a fifth to 130p.

One of the worst performing stocks was hit by a less well received trading update. The property services group Artisan fell 17.84 per cent to 76p as it reported the first half had been more challenging than expected.

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