Market Report: Takeover tailspin fails to sink British Airways

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The Independent Online

British Airways has been in a flat spin since the turn of the year, but pulled up on bid speculation that looked shaky at best.

The UK flagship carrier soared 6.16 per cent to 284.5p on talk that UAE airline Emirates was considering a bid. The talk failed to stand up to scrutiny for reasons including the Open Skies agreement, BA's ownership rules and, um, sources on both sides denying it.

The stock's resilience could be traced to a Société Gé*érale note, which was favourable on the European airlines sector.

Friday proved a cautious session, with traders not sure which way to bet. The FTSE 100 was up 21 points in the morning; fell to 75 points lower before finishing a bad week 20.7 lower at 6202. The Dow Jones index had a shocker, slumping 177 points in the morning on concerns over the financial markets.

Back in the UK, the housebuilders rebounded, as traders got over their disappointment at the lack of an interest rate cut on Thursday. Persimmon, which has been smashed this week in the wake of its trading update, rose 7.21 per cent to 691.5p, taking top spot on the leaderboard. One trader said the sector rise also reflected the closing of shorts at the end of the week.

The stories of Google tracking Yell Group from Thursday – however loosely based in reality they may prove – sent the directories business up again early on. The goodwill failed to hold and it closed 1p down at 324.25p.

Spiralling down to the bottom of the blue chips in the morning was conglomerate Unilever, after Morgan Stanley downgraded the stock from "equal-weight" to "underweight". The US broker said the cut was sparked "because we think that the operational improvement delivered by management during the past three years is now fully reflected in the price." The recommendation to lock in profits sent it down 4.95 per cent to 1729p. It was overtaken at the foot by International Power at the end of the day, 5.08 per cent lower at 434.5p.

Investors in Diageo needed a bit of Dutch courage as sentiment turned against the stock. There was talk that the brewer was set to put out a rocky trading update, amid the weakening consumer landscape. It ended 2.84 per cent down at 1,021p.

The wheels also came off at Rolls-Royce Group as it announced plans to slash jobs across the globe. The aerospace and luxury car group fell 2.1 per cent to 514p on the cost-cutting announcement.

Top of the second tier was Hochschild Mining, storming up 13.85 per cent to 413p. The Peruvian group was smashed earlier this week after it surprised the market with a profits warning. It rebounded yesterday as bargain hunters piled in following analyst recommendations.

The positive sentiment towards the housebuilders translated onto the second tier as several companies released trading updates. Bellway was 12.25 per cent higher at 728.5p, although it said the state of the market meant it could not make predictions for the full year. It does expect the number of legal completions in the six months to the end of January to be similar to last year's figure of 3,264 homes.

Bovis Homes was another solid riser, up 11.22 per cent stronger to 545p, as investors breathed a huge sigh of relief that its update wasn't worse. Dresdner Kleinwort increased its recommendation to "reduce" from "sell" on the stock, although lowered its price target, after the group said it was confident it would achieve in line pre-tax profits.

More bad news for Premier Foods after the poor response to its previous day's trading update. The stock fell a further 18.65 per cent to record lows of 133p, as rumours did the rounds that it could be contemplating a rights issue. Premier wasn't helped by a UBS note, which cut its price target from 270p to 225p, although it maintained its "buy" rating.

Reports in the rags that BAE System's joint venture with VT Group might have hit delays, sent the mid-tier stock down 66p. It rushed out a statement saying talks on the shipbuilding and naval support joint venture were at a "very advanced stage" which helped spark a slight rally. It closed 20.5p weaker at 687.5p.

Top of the small caps was Ultima Networks. The IT tiddler reported "excellent progress at the operating profit level during the second half of the year" sending the shares raging up 45.45 per cent to 0.8p.

Imaginatik was another stock looking strong yesterday. It rose 14.81 per cent to 3.87p as it announced two "important" contract wins, although it failed to name the clients.

Worst small cap performer was the computer games group SCi Entertainment, which nosedived after its takeover talks were called off. The company, famous for its Lara Croft and Hitman franchises, fell 88 per cent to 15.5p as it also warned on profits this year.

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