Market Report: Xstrata lifted by Vale approach speculation

There was more talk in the mining sector as the Xstrata saga continued to advance yesterday.

Reports from Brazil surfaced in the afternoon, indicating that Vale was finally ready to mount a bid for Mike Davis's company. Vale, which was reported to have won funding commitments from HSBC and Lehman Brothers earlier in the week, is supposed to have completed the preparatory paperwork and is believed to have raised as much as $50bn (£25bn) in financing for its approach. The news lifted Xstrata, which had begun to slip after spending the morning amongst the FTSE 100's top stocks, and the company's share price closed up almost 3 per cent (109p) at 3827p.

Merger talk also gave a boost to Carphone Warehouse and BG Group.

Late-afternoon rumours suggested that someone may be preparing to make a £4-a-share offer for Carphone Warehouse.

BestBuy, which has been linked to the company before, was soon touted as the most likely suitor and the news sent the UK retailer's shares to the top of the leader board. Carphone closed up more than 8 per cent (24.50p) at 328.50p.

As for BG Group, mid-morning whispers said that the natural gas company may soon be subject to a bid from the continent. While the identity of the potential suitor remained unknown, the chatter took BG's share price to 1100p, up 5.26 per cent, winning it second place in the roster of top stocks.

The FTSE 100 index, which spent most of the day in the red (down 150 points or 2 per cent at one point), ended the month with a gain as these rumours sparked a late rally. The index, which has lost around 9 per cent since the start of the year, was up 42.50 points at 5879.80.

On the downside, banking and finance shares were hit as investors and traders continued to worry about the prospect of yet more bad news from the sector. Speculation about a possible profit warning from Germany's Deutsche Bank did not help sentiment, nor did a note from Panmure Gordon, which said that "bells were ringing" in the sector. One trader, while hopeful that all the skeletons from the sub-prime closet would be out by the end of this month, said that the tap of bad news was "still dripping".

By the close, HSBC was down 0.46 per cent (3.5p) to 751.50p while the Royal Bank of Scotland was 0.84 per cent (3.25p) lighter at 382p. HBOS slid to 694.5p, down 8.5p.

Barclays, which was depressed by trader talk suggesting a cut in the company's dividend, was down by 1.78 per cent (8.50p) to 470p.

The housing sector also had another unfortunate day. Persimmon ended 3.93 per cent (31.50p) down at 771p while Bellway was down 4.34 per cent (36p) to 793p.

Wolseley, the construction supplies company which does most of its business across the pond, in the United States, was down 11.50p to 686p.

Elsewhere, Rio Tinto and BHP Billiton continued their rally in advance of the takeover panel's 6 February "put-up or shut-up" deadline. After earlier reports indicated that BHP may inflate its offer to 4.25-for-one, the latest rumour suggested that it may only go as far as 3.5-for-one.

Rio's shares were up 2.84 per cent to 4956p on the back of the talk. BHP also closed up, gaining 2.14 per cent to 1477p.

On the FTSE 250, which closed down 0.27 per cent at 9,881.80, Southern Cross Healthcare rallied after some investors thought it had been oversold earlier in the week. The stock closed up 5.57 per cent at 350.50p. Autonomy, on the other hand, ended its two day rally and closed down 3.71 per cent (35p) at 908.50p.

Cookson Group also closed down, hit by a note from Panmure Gordon in which analysts slashed their target price to 600p from 750p. The shares were 3p lighter at 551.50p by the end of play.

Panmure also dealt a blow to Bradford & Bingley, reiterating its "sell" rating on the stock and sending it down 2.47 per cent (6.25p) to 246.75p by close.

Negative broker sentiment did not hurt Kesa, however, as it closed up 3.35 per cent at 239p. Earlier, Dresdner Kleinwort lowered its recommendation for the stock, to "hold" from "add".

On AIM, Carpathian Resources, the Australian oil and gas explorer and producer, edged up a bit after appointing a new non-executive director.

One market source said that the new man, who will help develop funding for the business, was appointed in reaction to some activist shareholders who want to remove two other directors, including the company's executive chairman. The shares closed up almost 6 per cent (0.25p) at 4.50p.

Also on AIM, Oakdene Homes was the lone bright spark among house-builders. Its shares rallied after the previous day's profit warning, up 12.12 per cent, or 8p, to 74p.