Market Report: Aviva's bounce gets the gossips going

The Insurer Aviva rebounded yesterday on solid numbers and speculation of the assets it is looking to snap up. The group rose 21p to 400.3p, its biggest increase in four months, as the market cheered its third quarter statement. Investors were buoyed as chief executive Andrew Moss said the outlook for profitability this year was good and had "significantly increased our capital and balance sheet strength".

Questioned over potential targets, Mr Moss said the company would look at ING assets but dismissed any talk of going for RBS Insurance. All this talk of asset acquisitions left the gossips quite light-headed, and by the end of the day rumours were spreading that it could mount a bid for Legal & General. The chat was met with arched eyebrows and traders taking huge handfuls of salt across the City.

After the depressing market-wide falls of the previous day, investors went on a retail binge, with Marks & Spencer storming up 20.5p as Sir Stuart Rose said the worst of the downturn was over. Marks's first-half profit was at the top end of expectations at £298m as it got a good grip on costs. It added that third quarter trading to date was looking good with Investec analyst Katharine Wynne saying previous underperformance meant "there may be some catch-up due in the share price". She sounded a note of caution, however, saying the results "give little reassurance about margin resilience in the event of a downturn next year".

Top performer in the morning was Next, although it retreated slightly later on, which closed 102p higher at 1912. The clothing retailer, which has a network of 500 shops across the UK and Ireland, raised its annual profit forecasts for the fourth time since May as sales proved better than expected. Oriel Securities upgraded its pre-tax profit forecast 5 per cent to £475m with a "buy" recommendation.

The FTSE 100 returned to positive territory with vim and vigour, rising 70.6 points to 5,107, although one market expert said traders were holding steady in anticipation of the US jobless numbers on Friday. The top tier was helped by a return to form from the miners, whose see-saw week returned to positive territory yesterday. The surge was driven by the price of gold, which leapt to a record $1093.1 an ounce after India swapped out of dollars and bought 200 tonnes of the metal.

Analysts believe the price will go higher with other central bankers buying in and the dollar weakening. As a result, the top performer was Fresnillo, Mexico's second-largest gold producer, which rose throughout the day closing up 69p at 820p. It was bolstered by support from Numis, which started coverage with a "buy" rating and a target price of 915p.

The banks were also back. Royal Bank of Scotland put the massive bloodletting behind it. After losing 7 per cent the previous day it bounced back as analysts at Exane BNP Paribas backed the new terms of its participation in the government's toxic asset insurance scheme. Analyst Ian Gordon upped the stock's rating to "neutral" from "underperform" and said: "We see clear benefit arising from both the significant reduction in cost as well as the now highly accretive issuance of £25.5bn of B shares at 50p." The shares retreated as the day wore on, closing up 0.54p at 36.4p.

Not so successful was Lloyds Banking Group which had actually avoided the previous day's massacre. It couldn't defy gravity any longer and fell 1.04p to 86.29p. Comments from the head of UKFI, the government body overseeing the bank stakes, said yesterday that theoretically the Treasury could sue the banks if they fail to meet their lending commitments.

Royal Dutch Shell was near the bottom of a small list of fallers as it went ex-dividend, sending the shares 19p lower at 1743p. This came as RBS analysts cut the stock's target from 2100p to 2075p, but kept a "buy" rating.

Investors in Diageo could have done with a drink as Barclays started coverage with an "underweight" rating. It said the US spirit mark had peaked and companies may need to reinvest to lift sales. The shares fell 7p to 993p.

The housebuilders were the talk of the second tier, as Taylor Wimpey said market conditions "continue to be significantly better" than last year. House prices are on the up and mortgage availability was improving it said, adding the company was fully sold for 2009 and had slashed its debts from £1.87bn last year to £860m. The shares rose 3p to 40p. It was supported by a bullish statement from rival Redrow, which said net private reservations were up 47 per cent. Barrett Development was the top, rising 15.4 to 136.3p, the day it got its rights issue away with 92.3 per cent backing.

Bad news for sub-prime lender Provident Financial dropping 23p to 905p, despite support from Goldman Sachs. Worst on the FTSE 250 was Go-Ahead Group on the day it formed a new joint venture over yellow school buses in the US. It fell 23p to close at 909p just as rival FirstGroup accelerated 18.7p higher to 393.9p on the back of first half numbers.

In the wider market, there was bad news for Nipson Digital, which halved in value after saying it faced administration. The group is in talks over repaying a €2m loan and closed 1.25p lower at 1.25p.