Market Report: Talk of Procter swoop adds shine to Unilever

There may be regulatory stumbling blocks but traders cannot seem to get thoughts of a bid for the household goods and food group Unilever out of their minds.

A couple of weeks ago there was talk of a private-equity bid, one that would have to be big enough to consign 1989's $25bn (£14bn) Kohlberg Kravis Roberts bid for RJR Nabisco to the history books. Yesterday, Unilever's US rival Procter & Gamble was rumoured to be stalking the group with a bid worth 730p a share.

Trade was brisk, with 28.8 million Unilever shares changing hands, against an average daily volume for the stock of 13 million. Analysts were quick to point out there would be a significant amount of regulatory hurdles for Procter to overcome, but given the broad range of businesses Unilever is involved in, there should be no shortage of buyers for anything that Procter was forced to sell off. Shares in Unilever rallied 11p to close at 598.5p.

The paper and plastics distributor Bunzl was also the subject of rumours surrounding a potential buyout. The company's business activities may not be the most exciting in the UK market but the group enjoys high returns on capital, at about 40 per cent, mainly because of its scale. There is only £220m of long-term debt on the balance sheet with more than 17 times interest cover, and traders said Bunzl could easily support a significantly higher amount of leverage. Its shares rose 18.5p, or 3 per cent, to 657.5p.

After a grim trading session on Tuesday, when the FTSE 100 suffered its worst day since mid-October, there was relief all round as oils, telecoms and minersrallied, helping the market recoup much of the previous day's losses.

The FTSE 100 closed 52.6 higher at 5844.1. Tuesday's Google-inspired sell-off on the Dow Jones partly recovered as the benchmark US index ticked 54 points higher by the time the London markets closed.

The oil giant BP climbed 7.5p to 637.5p after it bought back 8 million shares, while its rival Shell added 44p to 1,839p. These two stocks make up an incredible 17.4 per cent of the index.

After a few lacklustre sessions of profit-taking and failed bid attempts, miners were buoyed by blockbuster results from Xstrata, which reported a 60 per cent rise in profits, alongside a 56 per cent rise in the dividend plus a strong outlook for this year.

Many traders believe the sector is in a long-term upward trend and that any blips are a buying opportunity. Xstrata surged 92p to 1,757p, the best performer in the blue-chip index, while Rio Tinto climbed 20p to 2,700p and its rival BHP Billiton added 12.5p to 972.5p.

Among the less probabletakeover speculation to hit the markets in recent weeks was talk that a mystery bidder might be circling Reuters. The struggling information and financial data provider looks to be in dire straits after it reported poorly received numbers and a gloomy outlook last week, sending its shares into freefall over the past three sessions. There was a slight recovery yesterday amid the rumours, but traders gave them little credibility as Reuters shares managed only a slight rally to close at 384.5p, up 4.5p, more than 17 per cent below its pre-announcement price.

Among second-line stocks there was a strong market in Vedanta Resources, up 113.5p at 1,099p, as the influential broker Merrill Lynch waxed lyrical on the Indian mining group's prospects. The broker increased its price target on Vedanta stock to 1,500p, and believes a strong underlying zinc market will continue to drive earnings higher. The group is also likely to benefit from a reduction in Indian metal duties.

There was also a strong bounce back for shares in CSR, after Tuesday's numbers disappointed and investors fretted over the 2006 outlook. The bluetooth-chips company is one of few British technology firms that can lay genuine claim to being a global leader in its field, and the broker Killik & Co advised its clients to buy into the weakness. It said: "We believe the fall looks overdone and the prospective rating on the downgrade leaves the stock at an unjustifiable discount to the sector." Shares in CSR rallied 78p to 983p, a rise of 8.6 per cent.

In the smaller stocks, Greenwich Resources returned from suspension and confirmed a three-way merger with the Australian miners Buka Minerals and Danae, sending its shares 0.6p higher at 3.25p. The company will change its name to Scarborough Resources and is expected to have a capitalisation of £50m. It will also raise £15m through a placing.

Finally, Network Technology was the star performer in the small-cap sector, climbing 24.4 per cent to 140p. Ringdale, a subsidiary of Network, bought assets from Nlynx Technology for an undisclosed sum that could bolster revenues at Ringdale by $1.6m this year.