Market Report: Kingfisher dives on rumours of poor Christmas

Corporate activity chatter drove markets higher again yesterday, with traders also awaiting the Bank of England's interest rate decision on Thursday. However, anyone expecting a quiet week until that decision was mistaken as another bout of takeover and profits warning speculation gripped the large-cap stocks.

Some traders made bearish bets on the retailer Kingfisher, the owner of the DIY chains B&Q and Castorama. There was high volume in the option market as puts were traded heavily, fuelling rumours the company is about to announce a profits warning. The house broker Credit Suisse lowered its forecasts for Kingfisher last week and traders were talking about grim Christmas trading. Shares in Kingfisher fell 3p to 227p.

Boots closed 27.5p higher at 675p, the biggest riser in the FTSE 100, as private-equity firms were thought to be circling the health retailer. Talk was of a possible bid at 700p.

The oil giant BP will announce bumper profits today, but traders had other ideas on their minds yesterday as the Spanish national newspaper El Mundo reported BP and the Italian rival ENI were preparing to bid for Repsol, the Spanish oil company. Until yesterday, Repsol had been protected by a "golden share" owned by the Spanish government which, in effect, prevents a bid for the company.

Repsol has a market capitalisation of about one-seventh that of BP, and some sector watchers believe there is more room for consolidation among the largest players in the sector. Lord Browne of Madingley, BP's chief executive, has been fearless in the acquisition market and few would bet against him leading the next round of consolidation. BP shares closed up 7p at 665.5p.

GUS was also well bid, up 16.5p to 1,066.5p, after weekend press reports linked the retailer with a sale of its consumer credit rating business, Experian, to private-equity firms, valued at about £6bn. However, most traders still believe Experian is more likely to be floated, with GUS selling off its stake over a longer period, as the company did with the fashion retailer, Burberry.

Credit Suisse's sales traders were pushing the virtues of Scottish & Newcastle, saying the world's largest brewer, Anheuser Busch, was on the lookout for a suitable target. S&N has a 50 per cent stake in the Russian brewer BBH, which the broker believes makes it an attractive target for a company that is facing falling sales in the US. Busch, the brewer of Budweiser, has also failed to make a significant purchase in emerging markets where beer sales are growing strongly, and Credit Suisse believes the company could attract a bid of 700p. The shares closed at 498.75p, down 0.25p.

Lloyds TSB was again well bid as its rumoured suitor, BBVA, sold its stake in the Italian bank BNL to the French rival BNP Paribas. Some traders believe the sale of this stake will allow BBVA to bid for Lloyds, although the takeover story is well known and some analysts believe the good news is already in the price. Lloyds shares rallied 4.5p to 525.5p.

Cairn Energy led the large-cap fallers, declining 61p to 1,904p as two heavyweight brokers published bearish notes on the stock. Merrill Lynch went from "buy" to "neutral", while Citigroup urged clients to sell the stock.

In the mid-caps, shares in the second-hand car dealers Pendragon and Reg Vardy surged as their rival Lookers pulled out of its bid for the latter. Pendragon upped its offer for Vardy on Friday to 900p per share and controls 27.9 per cent of the company. Lookers had proposed a three-way merger between the groups but that looks highly unlikely. Pendragon gained 36p to close at 549p, while Reg Vardy rallied 37p to 895p. Lookers fell 33.5p to 573.5p.

The infrastructure services group Mouchel Parkman gained 23p to 320p, as a trading statement confirmed the company was on course to meet expectations. The Dutch broker ABN Amro responded with an upbeat note, highlighting the company's fast growth, conservative forecasts and excellent visibility.

In the small-caps, traders will be watching China Gold Mines when it comes to the market tomorrow. The broker Bell Lawrie White has led a placing at 60p and the thirst for emerging-market commodity plays is likely to spark interest among retail buyers. The company will hope to emulate Bodison Biotech, a Chinese group that floated on AIM yesterday. Its shares rocketed after a placing at 730p, which was three times oversubscribed, closing at 943.75p after opening at 900p.

Chariot Lottery enjoyed a good debut on AIM. The lottery operator expects to give a higher proportion of its income to charity and says it will give players better odds of winning than in the National Lottery when it launches this year. The shares rose 7p to 122p.