Market Report: BAE soars as countries boost their firepower

While it may not be the ethical investor's stock of choice, BAE Systems certainly has its allies in the Square Mile. They were out in force yesterday as the arms dealer was fired up to a seven-and-a-half month high amid praise for its international exposure and hopeful speculation that possible disposals could result in a windfall for investors.

With budgets in the UK and the US under attack, defence companies have been beating a path to countries where governments are rather more eager to bolster their firepower. BAE has been particularly successful at this, given a third of its sales now come from Saudi Arabia, and Barclays Capital yesterday highlighted this as "an underappreciated long-term strength".

Raising their advice to "overnight", the broker's scribblers also suggested disposals could be in the pipeline, arguing that its recent failed attempt to sell its Platform Solutions aerospace unit "indicates a portfolio rebalancing has been considered".

If BAE does start slimming down, they argued, its track record suggests the proceeds could be put towards increasing cash returns to shareholders. In response the group was driven up to its highest share price since last June, climbing 8.8p to 322.5p and extending a two-month run in which it has added over 25 per cent.

BAE was also helped by the news that it is in talks with the Omani government over selling a number of fighter jets, with hopes high that India will soon choose the Eurofighter Tycoon aircraft as well. Meanwhile, recent reports claiming it could close its Portsmouth dockyards may be bad news for its workers, but City voices argued such a move would be applauded by investors.

With most of the Asian markets putting the shutters up for Chinese New Year, it was a quiet start to the week. Yet despite no signs of a deal between Greece and its creditors, optimism over the eurozone crisis was still on the rise and the FTSE 100 closed at its highest for almost six months by powering up 54.01 points to 5,782.56.

Essar Energy, which has shed close to 30 per cent since losing a major tax ruling in India last week, managed to recover 13.1p to close at 135.6p. The energy giant raised its reserves estimate for its Raniganj methane block in east India, prompting hopeful speculation similar announcements could be around the corner plus the revival of vague bid speculation, which has been widely rubbished.

The price of oil was higher after the European Union approved the embargo on Iran, helping BP and Royal Dutch Shell up 9.25p to 476.7p and 69.5p to 2,399p respectively, while black gold kept rising after the bell on reports Gaddafi loyalists claimed to have taken control of the Libyan town Bani Walid.

Down on the FTSE 250, a massive spurt up of over 33 per cent to 23.9p for Cable & Wireless Worldwide unsurprisingly prompted some to turn their minds to the vague takeover speculation which has often surrounded the troubled telecoms group. Yet, traders instead were putting the move down to a heavy seller being recently cleared out, with CWW still roughly 70 per cent lower than this time last year.

Dixons Retail charged another 1.07p higher to 14.6p, meaning the high street chain has added nearly 50 per cent in the last week. It was helped by a double upgrade from Morgan Stanley's Geoff Ruddell, who upgraded his advice to "buy" and doubled its target price to 16p, saying he was "more confident that Dixons will be a long-term 'survivor'".

Soon-to-be ex-rival Kesa Electricals, which is in the process of selling off its Comet chain, slid back 3.25p to 68.25p following disappointing business confidence data from France, the main market of its Darty business.

Back on the top-tier index, Tesco ticked up 6p to 335p as Patrick Cescau became the third of the supermarket's directors to join the US billionaire investor Warren Buffett in snapping up shares following its recent profits warning.

Yet again, there was plenty to keep those punters drawn by the attractions of the small oil explorers interested. President Petroleum flew up 28.57 per cent to 51.75p on another encouraging update from its Argentinian operations, while the Falkland Islands-explorer Rockhopper surged 17.75p to 340.25 following reports claiming it has been in talks with the US giant Anadarko.

Elsewhere, Ithaca Energy was 26.18 per cent better off at 180.12p after announcing it had received a takeover offer, although the group – which operates in the North Sea – kept schtum about who the aggressor was.

Reports that 2012 has got off to a horrible start for Thomas Cook, with online bookings dropping 45 per cent in the first half of January, left the struggling tour operator 0.75p worse off at 14.25p on the small-cap index.

FTSE 100 RISERS

l Prudential 716.5p (up 22.5p, 3.24 per cent) Insurer boosted by Royal Bank of Scotland reiterating its "buy" recommendation following reports AIA could be interested in a possible move for ING's Asian operations.

l BHP Billiton 2,159p (up 33.5p, 1.58 per cent) Miner one of a number in the sector to be helped by global steel production figures showing a rise of 6.8 per cent in 2011 and an 8.9 per cent increase in China.

FTSE 250 RISERS

l Renishaw 1,210p (up 118p, 10.81 per cent) Precision engineering company moves higher thanks to the scribblers at UBS telling punters to pile in by upgrading their recommendation to "buy".

l Heritage Oil 198.9p (up 11.7p, 6.25 per cent) With it getting a boost from the price of oil rising, explorer climbs as vague speculation continues to persist that it could be in line for an approach.

FTSE 100 FALLERS

l Weir Group 1,884p (down 70p, 3.58 per cent) Engineer continues to fall on fears over near-term demand from the shale gas industry as JP Morgan downgrades its recommendation to "neutral".

l IMI 855p (down 22.5p, 2.56 per cent) Analysts from UBS help engineering company to drop by removing their "buy" advice, predicting a further slowdown in organic growth over the year.

FTSE 250 FALLERS

l Afren 117.9p (down 6.7p, 5.38 per cent) Africa-focused oil group ends up with the mid-tier index's wooden spoon after its production figures and predictions come in under the City's forecasts.

l Ocado 85.6p (down 2.05p, 2.34 per cent) Online grocer drops as it is hit by the news that its chief financial officer, Andrew Bracey, has resigned from his position to join the recruiter Michael Page.