Market Report: Takeover talk returns as FTSE 100 recovers

First up was Smith & Nephew as rumours spread that the US consumer healthcare group, Johnson & Johnson, was preparing a 500p bid for the medical devices group. The company has been the subject of takeover rumours in the past and most analysts believe it is in the marketplace for a bid.

One trader said: "Smith & Nephew would make a good fit for any of the larger healthcare groups, and with about half of its profits coming from the US, I would not be surprised if it wasn't just Johnson & Johnson interested." The shares closed 18p better at 434p on solid volume, with 8.7 million shares changing hands.

Elsewhere in the FTSE 100, there was vague talk of an Icelandic bid for Wm Morrison Supermarkets, although some traders said with Sir Ken Morrison still at the company, a bid is a long shot. Sir Ken, whose father founded the company in 1899, has strong ties to Yorkshire and is thought unlikely to give his blessing to a foreign bidder. Even so, volume was again good with more than 26 million shares changing hands as the shares rallied to 200.25p, a rise of 4.75p.

After a dreadful day of trading on Thursday, which saw global markets take a hammering on the back of a wave of interest rate rises, London shares attracted strong support yesterday. The FTSE 100 closed 92.3 higher at 5,655.2, underpinned by strength in banking, oil and mining stocks.

Banks were back in favour thanks to the broking giant Merrill Lynch upgrading the sector after the recent sell-off. The best performer was Royal Bank of Scotland, 46p better at 1,786p before Tuesday's trading statement.

Only six FTSE 100 stocks ended in the red, with traditionally defensive tobacco stocks weaker as investors moved back into growth stocks. British American Tobacco fell 12p to 1,343p and Gallaher shed 7.5p to close at 805.5p. Takeover rumours refuse to go away at Britvic, the soft drinks group that has warned on profits twice in its first six months as a publicly traded company. PepsiCo, the US drinks giant, is thought to be preparing to bid for the group in which it already has a 5 per cent stake. The talk is that an offer worth 285p per share will be put to the company on Monday. The stock firmed 6.5p to close at 213.5p on decent volume of 5.8 million shares.

Elsewhere in the second-line stocks, shares in the struggling information technology provider iSoft rallied after a disastrous day of dealing on Thursday. The share price tanked after the company announced it will restate profits for the past four years and is having to renegotiate its banking covenants. The shares climbed 6.75p to 57.75p, although dealers said much of the buying was down to short covering.

The insurance group Cape was firmer on news that the company has put in place a scheme of arrangement to cover its liabilities in asbestosis claims. The £40m facility includes £22m from Cape shareholders and a new £15m facility from Barclays Bank. However, tucked away at the bottom of the statement were some very bullish comments on current trading from the chairman Martin May, who confirmed current trading is ahead of expectations. Traders seem to have skipped the last paragraph as the shares closed only 2p better at 162p.

A disappointing after-hours trading update on Thursday from the investment management software group Hamsard Group saw the shares more than halve yesterday. The group blamed longer-than-expected sales times for the warning, which will see the company report pre-tax losses of between £3.75m and £4.5m for the current year. Management and Brunswick Investment Holdings hold more than 80 per cent of the stock, so volume was thin with only 18,246 shares changing hands. Even so, the news was enough to knock the shares down 26p to 25.5p

The property investment and trading group Safeland also had grim profit news for traders, blaming "challenging" trading conditions and a lack of good investment opportunities for a £1.1m loss, down from a £1.8m profit in 2005. However, investors took heart from a steady net asset value per share of 110p, preventing the shares from taking a drubbing. The stock closed 9p worse at 102.5p.

On the upside, there was good news for Northern Petroleum as the company was awarded a 25-year licence for the Papekop field in the Netherlands. The Dutch government will take a 40 per cent stake in the field, which has proven reserves of 12.2 million barrels of oil and 39.4 billion cubic feet of gas. The shares jumped 18p to 134.5p, a gain of 15.5 per cent.