Market Report: Chinese whispers lift Prudential once again

Rumours about Prudential and British Energy brought some excitement to the market yesterday, with early morning talk suggesting that China Life, which has been linked to Prudential in the past, is finally about to make its move.

Rumours that the German utility RWE is about to make an 800p a share bid for British Energy also re-surfaced. However, traders were sceptical on both counts, noting that reheated speculation typically did the rounds on a slow day. "Business is down and people appear to have a lot of time on their hands," said one trader.

The chatter did manage to keep the two stocks firm, however, and Prudential closed up 9p at 662p, while British Energy, which has also been touted as a target for Centrica, rose 6p to 666p.

Overall, the FTSE 100 advanced by 57.1 points to 5,717.5. A rally among house builders and in the banking sector kept the London benchmark buoyant.

Persimmon, which suffered in the sell-off earlier in the week, topped the leader board as investors picked up a bargain. The company's share price rose by 52p to 789.5p. The construction materials manufacturer Wolseley, boosted by some positive broker sentiment from Goldman Sachs, whose analysts revised their rating on the stock to 'neutral' from 'sell', was also up, gaining 25p to 552p, claiming third place on the leader board.

Among banks, HBOS gained 16p to 557p, while Standard Chartered was up 37p to 1795. Like the house builders, the sector was a beneficiary of the positive sentiment that swept the market after pleasing updates from Compass and Firstgroup. Also on the FTSE 100, a spike in the oil price gave a lift to Cairn Energy, which rose by 130p to 2816p, claiming second place on the leader board.

The FTSE 250 was also up, gaining 225.9 points to 9982.0. The mid-cap engineering group FKI was up 1.75p to 69p as rumours about the ongoing bid situation surfaced late in the afternoon. The talk suggested that Melrose, which made a revised, indicative offer of approximately 83p a share for FKI earlier this month, was getting ready to formalise its offer. Melrose, it was said, was pleased with the progress of due diligence and was close to securing the requisite funding for the deal. There was no indication about timing of a formal offer.

Reacting to the rumour, one market source said that there was still a question mark over Blackstone's next move. The US private equity giant is believed to have considered a counter bid for FKI, having failed to acquire it for 130p per share last August. Melrose was up 7.75p to 143.25p.

There was some movement in Shaftesbury, the mid-cap property company. The stock was up 22.50p to 585p on the back of a couple of large mid-afternoon trades.

Redrow was up following news that Toscafund, the London hedge fund that backed Virgin's bid for the now nationalised Northern Rock bank, had picked up a 16.56 per cent stake in the the house builder.

The stakebuilding in Redrow follows Tuesday's news that Tosca had picked up close to 10 per cent in Aberdeen Asset Management.

Redrow jumped 25.50p to 314.50p, while Aberdeen was up 11.75p at 140p yesterday.

The business services firm Rentokil Initial, which left the FTSE 100 for the FTSE 250 earlier this week, was up 8.50p to 96p after analysts at Merrill Lynch increased their target price for the stock, to 120p from 105p. Merrill also added Rentokil to its "European Focus 1" list of recommended stocks, noting that the new management team, led by chairman John McAdam, should bring credibility to the company.

"The ex-ICI team should bring a much clearer strategy for value creation," the broker said. "We expect management to focus upon optimising capital allocation, re-building profits and stakeholder relationships, as opposed to breaking up the group."

Commenting on the new the strength of the new set up, Merrill added: "McAdam was appointed CEO of ICI in April 2003 and subsequently presided over a six-fold increase in the shares price."

Elsewhere, Ardana, Edinburgh-based specialist pharmaceutical company, soared by a spectacular 89.47 per cent or 8.50p to 18.50p after announcing that it had received a 'number of approaches' which may lead to an offer for the company. Ardana stressed that the talks were still at an early stage, and that an offer may not materialise. The company said the discussions had generated 'significant interest' in potential licensing opportunities for some of its products.

On AIM, Allied Gold gained 4.75p to 39.25p after announcing that Barrick Gold Corporation, the world's largest gold producing company, was investing A$20m for a 70 per cent interest in its exploration licence covering the Big Tabar and Tatau Islands near Papua New Guinea.