Market Report: Bid talk surrounding Kingfisher provides a lift

The FTSE 100 rallied yesterday to its best one-day performance in seven months, thanks to plenty of bid speculation, rises in heavyweight stocks and hopes of an interest rate rise in the US.

The FTSE 100 rallied yesterday to its best one-day performance in seven months, thanks to plenty of bid speculation, rises in heavyweight stocks and hopes of an interest rate rise in the US.

Closing up 1.2 per cent, or 59.5 points, at 4,861, the blue-chip index made its biggest one-day gain since October. Early trading saw the market surge higher to catch up with Wall Street after the bank holiday. But traders were also looking forward to the anticipated rise in interest rates in the US.

One of the biggest risers was Kingfisher, owner of the B&Q DIY chain, which saw its shares soar more than 5 per cent during the day on reports that Permira and Apax Partners are lining up for a £7bn takeover. Further evidence provided yesterday by CBI retail sales figures which showed the once spendthrift consumer is holding back only served to fuel hopes that the group would be sold to private hands.

Apax has been on the lookout for a deal after its failure to buy Woolworths ,and Kingfisher shares have been severely weakened after news last week that sales had slowed. This could spark a battle for the home improvement company, with Lowe's and Home Depot, two US rivals, thought likely to stage a counter-bid. Shares in Kingfisher closed 3.4 per cent up at 253.75p.

The CBI's dire April retail sales figures had a negative impact, however, on Boots Group. Sales of chemist goods were singled out as being particularly bad, pulling shares in Boots down 0.5p to 600p. Other retailers were also hit by the retail sales figures, but the one bright hope in the sector is Matalan. It reports sales figures today, and is expected to have produced a solid rise. Its shares were up 4p to 193p on hopes that Matalan's trademark discount prices have been low enough to lure in customers.

Rolls-Royce also took off yesterday after an upgrade by brokers at Credit Suisse First Boston, which has the company on "outperform", up from its previous neutral view. CSFB argues that recent weakness in the share price, given it has reliable, defensive qualities make it an attractive buy. It rose 7.5p to 244.5p.

The main factors pushing up the FTSE were gains in some heavyweight industries, from pharmaceuticals to oil. Elan Corporation, for example, the troubled Irish drugs maker, was for once on the receiving end of positive market speculation. Rumours that the company may have its key multiple sclerosis drug back on the shelves within the next 18 months drove up shares by as much as 29 per cent at one point yesterday. Tysabri was recalled from sale in February after the death of a patient, causing a sharp drop in Elan's share price and prompting an SEC investigation into share sales prior to the announcement. Shares in Elan yesterday closed at €4.88 euros, up 17 per cent, which analysts at JP Morgan attributed to hopes of an early return of Tysabri.

GlaxoSmithKline's purchase of Corixa drove up sentiment towards the pharmaceutical sector. Its rivalAstraZeneca ended up 64p at 2,345p.

Shares in Shell rose 1.5p to 471p on news that it was planning to invest in Libya's liquified natural gas plant. This drove interest in BP, which also has interests in Libya. Falkland Oil & Gas, a minnow by comparison, also surged ahead. Backed by the fund manager RAB Capital, the company significantly upgraded its potential finds in the South Atlantic yesterday, sending it up 11p to 120p. It now has 130 potential leads in the region, compared with an initial eight, and reckons that several holes could contain reoverable oil of more than 200 million barrels. A fund raising from the company is still expected, however. Market sources are keeping a close eye on Cambrian Oil & Gas, which some say will soon announce its first major exploration and drilling project. It advanced 9 per cent, up 0.5p to 6p.

There were mixed fortunes in the housebuilding sector, as Crest Nicholson dropped 11.5p as hopes of a takeover from Heron will fall apart today. Crest is thought to have refused to open its books to Heron, and Heron has said it is unlikely to mount a hostile bid. Elsewhere in the sector, shares in Bellway leapt 36p to 800p on take-over speculation. Market sources are hopeful that a takeover bid by its rival Persimmon Homes, could soon be in the offing as the sector consolidates to reduce costs.

In the small-cap market, the craze for all things online gambling related continued. Gambling Corporation, an AIM-listed internet portal for online casinos, bought a much larger rival for £10m. The purchase of a Jersey-based private company, Newbold, which operates a similar gambling site search engine, sent its shares up 14.5 per cent to 14.5p.