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Silly season stories surround Asda and WH Smith

In a long hot summer, with trading slack, some quite outrageous stories can achieve credibility as dealers attempt to drum up business.

A deal between Asda and WH Smith could be said to be bordering on the ridiculous, but such inhibitions are thrown overboard when, in a sinking stock market, the shares of the two retailers forge ahead.

Asda, the supermarket chain revitalised by ex-Kingfisher finance director Archie Norman, was the day's best-performing blue chip, up 4p to 108.75p with approaching 26 million shares printed.

WH Smith, devastated by a profits decline, recovered from early hesitancy to end with a 5p gain at 386p. The shares hit a 324p low in July after reaching 520p in August last year.

Such a twin retailing display reawakened many stories which have swirled briefly in the past few weeks.

An Asda bid for WH Smith is one. It is argued that Mr Norman's reshaping exercise is complete and, with the pace of growth slowing, he is casting around for a new challenge.

With Smith suffering from competition from the superstores, and possibly looking for a little help, what more natural than a deal.

Other stories going the rounds included Mr Norman moving in as chief executive of Smith and some form of trading tie-up between Asda and Smith. It may all sound like late summer pie in the sky, but with the two retailers attracting intense speculation it will take a lot to dissuade the market that it has not alighted upon a deal in the making.

Just for good measure the possibility of Asda offering cut-price drugs and buy recommendations from ABN Amro Hoare Govett and Societe Generale Strauss Turnbull added to the excitement.

The FT-SE 100 index fell 26.2 points to 3,477.8 with a moderately firm New York opening and takeover sparks flying among the regional electricity companies preventing a much steeper fall.

The Whitehall decision to clear the three electricity bids, although not unexpected, sent a surge of takeover anticipation through the sector. Continental and US groups are said to be queueing to pounce and the Whitehall clearances would provoke them into action.

Eastern, in Hanson's sights, jumped 29p to 962p; South Western, which has accepted a US offer, 30.5p to 968p, and Manweb, resisting the advances of Scottish Power, 93p to 971p.

In anticipation of action, others romped ahead. East Midland gained 44p to 794p and Yorkshire, long rumoured to be Hanson's target, 37p to 825p.

The rest of the market was unsettled by the weaker-than-expected Rolls- Royce results with the rest of the corporate offering providing little inspiration. Rolls fell 15p to 175.5p.

Tate & Lyle lost 12p to 459p as two US drink bottlers were said to have filed lawsuits against its AE Staley off-shoot, alleging corn syrup prices had been held at artificially high levels.

Builders found another cross to bear; a surprisingly cautious statement from the normally exuberant Persimmon housebuilding group. Its shares fell 17p to 175p, lowering, among others, Barratt Developments by 7p at 188p and Redrow by 5p to 107p.

WPP, the advertising group, resisted the gloom, jumping 13p to 164p with Merrill Lynch said to have earmarked the shares to reach 200p.

Flextech gained 3p to 438p on its arrival as 20 per cent shareholder at Scottish TV, up 17p at 499p. Scottish is taking on Flextech's 20 per cent interest in HTV, up 13.5p to 219p. Mirror Group, with 16 per cent of the enlarged Scottish group, gained 1.5p to 151p.

Sears, the retailing group, gained a further 2p to 112p. NatWest Securities says the group is "approaching a strategic crossroads" and ponders the possibility of corporate action. It has upgraded its stance from reduce to hold.

Rexham, the packaging group, fell 14p to 420p following, it was suggested, an unimpressive investment presentation.

Whitbread, meeting institutions in Scotland, eased 2p to 614p and Merrydown, strong recently, said competition in the cider industry remained tough and fell 9p to 126p. The sector was also hit by negative comments from Goldman Sachs.

Hambros remained on the up-road, up 2p to 207p. A cash-raising exercise by Commerzbank, which had wanted to buy Kleinwort Benson, provided the spur. Gartmore, the fund manager, also responded to bid speculation, up 7p to 219p.

BTR edged forward 2p to 341p on NatWest support and computer group Psion rose 11p to 500p on Barclays de Zoete Wedd interest. Radstone Technology lost 10p to 50p after a dividend warning.