Market Report: Home Retail tops mid-tier thanks to takeover rumours

As screens in the City continued to flash red, the market gossips made a return yesterday to a number of old favourites.

Among the familiar tales doing the rounds were whispers that Home Retail could be in line for a rush of takeover activity. The reheated mutterings included suggestions once again that the Asda owner and US supermarket behemoth Walmart may be mulling over making an approach – possibly in the region of 180p a share – for the retailer.

At the same time, there were also claims that Home Retail's struggling Argos business may be attracting the attentions of private equity. The company has been under pressure over the performance of the chain, which saw an 8.5 per cent drop in sales for the second quarter, and its chief executive, Terry Duddy, was forced last week to rule out the closure of any stores.

The group ended up finishing top of the mid-tier index by advancing 6.2p to 118.6p, although traders – who were proposing its Homebase chain may have been boosted by the recent unseasonably hot weather – were decidedly unimpressed by the rumours.

Regurgitated bid chatter was also doing the rounds among the blue-chip oil companies, where once again the Chinese state-owned group Cnooc was being linked with a possible approach for Tullow Oil, although the explorer still eased back 9p to 1,300p.

Similarly, BG Group crept down 7.5p to 1,234p despite persistent takeover rumours; the energy company was said last week to be a possible target for a Chinese aggressor.

Overall, the FTSE 100 shrugged off the news that the UK's manufacturing sector managed to grow in September for the first time in three months by retreating 52.98 points to 5,075.5, continuing a four-day slide in which it has shed over 4 per cent.

"The Greece story is boring the hell out of me," moaned one trader, but unluckily for him the country's woes were still dominating. Figures showing it is on track to miss its deficit targets are knocking indices across Europe, and the banks certainly took it badly as Royal Bank of Scotland slid 1.03p to 22.46p while Lloyds Banking Group moved back 1.41p to 33.46p.

Elsewhere in the sector, Standard Chartered shifted down 57.5p to 1,229.5p after the Asia-focused group continued to be hit by fears over China. Concerns over the country's growth prospects were heightened by yet more disappointing economic data.

This data also hurt Burberry, which has enjoyed a massive boost from an increase in demand for luxury goods from the country. The upmarket brand moved down 82p to 1,092p, continuing a slide that has seen it lose over a quarter of its share price in less than a fortnight.

Some in the market expressed surprise at the extent to which investors were ignoring bullish comments from Goldman Sachs on the retailer after the heavyweight US broker argued that "luxury brands are scarce assets" and that Burberry was the most likely to become a bid target.

While a number of their peers in the wider mining sector were also being driven back by concerns about China, the precious metal diggers were ahead. With gold getting a boost from its defensive appeal and from Morgan Stanley's Alain Gabriel increasing his forecast, Randgold Resources ticked up 230p to 6,520p to finish in pole position. Mr Gabriel was proving rather less helpful for the rest of the miners, however, reducing his expectations for the base metals as Kazakhmys jumped down 30p to 763p.

Meanwhile, Vedanta Resources closed 8.27 per cent behind at 1,010p despite the explorer Cairn India – part of which the miner is buying from Cairn Energy (15.7p worse off at 265p) – striking gas off Sri Lanka.

The mobile telecoms giant Vodafone climbed 2.3p to 168.55p after being picked by ING's Jeffery Vonk as the scribbler's top choice among its global rivals. The analyst said the company had "a unique combination of defensiveness and a well-balanced growth portfolio of assets", and started coverage with a "buy" rating.

There was plenty of bid talk around the small-cap pub companies, although it was hardly prompting much celebration. Despite mutterings claiming private equity could be interested in an approach worth 20p a pop, mixed with optimism that the sun may have tempted drinkers out, Punch Taverns still lost more than 11 per cent, plummeting 1.25p to 10p.

Meanwhile, Spirit failed to move from 35.5p after RBS said it did not expect the pubs company, which demerged from Punch earlier in the year, to receive an approach "in the shorter term", although the broker kept its "buy" advice.

Elsewhere, the software group Patsystems lost nearly 38 per cent of its share price, plummeting 7.5p to 12.25p, in the wake of its admission that a number of deals had been delayed and that its performance for the year would therefore fail to match that of the previous 12 months.