Market Report: Water, water bid talk everywhere as stocks rise

Water stocks were in focus yet again as talk of a 750p-per-share bid for Pennon Group, up 34p to 691p, did the rounds.

Although talk of another bid in the utility sector has been circulating for a while, it is some time since a major infrastructure deal - in fact there has not been a deal so far this year. The last major utility deal was struck seven months ago when ScottishPower agreed to an £11.6bn bid from its Spanish rival Iberdrola. Other water stocks were well bid, with Severn Trent rallying 20p to 1,556p, Kelda up 29p to 1,001.5p and Northumbrian Water Group 3p better at 340p.

The telecoms group Cable & Wireless was in demand before today's full-year results. Traders were speculating that the company will announce a demerger of its Caribbean interests. There was also some talk that Deutsche Telekom is mulling a bid for the company but for most traders that is an old story with little grounding in reality. Even so, C&W closed 4.9p better at 186.7p. Mobile telecoms giant Vodafone topped the blue-chip risers with a 5.3p gain to 149.9p as traders speculated that it could report forecast-busting numbers.

Investors were still deserting GlaxoSmithKline like the plague. Morgan Stanley believes that Avandia, the diabetes drug at the centre of a heart attack scare, will get a "black box" FDA warning and even though chief executive Jean-Paul Garnier said he is "looking forward" to an FDA review of the drug, investors are not so sure. Swiss broker UBS also dropped its target for the shares as the stock slipped another 27p to 1,344p.

Coal-fired energy producer Drax Group has emerged, phoenix-like, from a disastrous end to 2006 when the stock lost more than 30 per cent of its value and was nearly ejected from the blue-chip index. German broker Deutsche Bank reiterated its "buy" stance on the shares and upped its price target to 950p; the shares rose 25p to 820.5p.

In the wider market, London shares were broadly positive but bad news from Tate & Lyle, down 40p to 605p on disappointing sales of Splenda, and some mild profit-taking in oils dragged the market back. The FTSE 100 closed 9.8 firmer at 6,616.4.

The rumours were going around in circles at the London Stock Exchange. Early on, word was that the company is poised to bid for Deutsche Börse, only for that rumour to be rubbished in favour of a bid for the Scandinavian exchange group OMX. But some traders believe a bid for the Deutsche Börse equity market makes more sense, allowing the German market to concentrate on its fast-growing derivatives business. Either way, the market was not exactly enthusiastic as shares in the LSE closed 8p worse at 1,349p.

Recruitment group Robert Walters, up 29.5p to 374p, found plenty of support on the back of Goldman Sachs initialising coverage with a 455p price target and a place on its "conviction buy" list. The US investment bank cites the "massive" skills shortage in the UK and demand for top-end management. Goldman is forecasting full-year earnings 25 per cent above consensus forecasts.

Honeycombe, 6p better at 26.25p, continues to attract support before the reverse takeover by Robert Cain, a brewing group. But market makers pointed out that shares recently placed at 5p in a fund raising to go along with the Cain deal become tradeable on 8 June. With the stock standing at more than five times the placing price, some new shareholders are bound to be tempted into banking some profits.

It looks like some consolidation is likely among the providers of Individual Voluntary Arrangements. Debts.co.uk, down 3p at 98p, confirmed it is in "advanced" acquisition talks and has raised the funding required. But the market greeted the news with little enthusiasm, with possible targets Accuma 1.5p worse at 30.5p, and Debt Advisor Group up a penny to 9p.

Top performer in the small caps was ILX Group. The company told the market that contracts with the Home Office, the Environment Agency, Telent and an unnamed high street bank will generate new revenue in the region of £1m. The shares surged 23p to 79.5p.

Finally, there was a good start to trade on the public markets for Plantic Technologies, after a placing at 64p per share that raised £20m of new capital. The company turns corn into plastic that is then decomposable in hot water, and the placing was thought to have attracted the interest of a handful of big institutions. The shares closed at 82p, giving new investors a tasty 28.1 per cent premium.