Market Report: Hopes of Sky deal push ITV shares higher

ITV was back in focus yesterday after market rumours suggested that BSkyB had been approached for its stake in the company.

Traders said that movements in the bond market had sparked the rumours, which cast Italy's Mediaset and Bertelsmann, the German media group, as the most likely buyers of Sky's 17.9 per cent interest.

The Europeans were said to be keen on securing the stake ahead of a full bid for the broadcaster. "This is not the first time we've heard this and it won't be the last time until the Sky stake situation is resolved," said one trader, referring to the string of rumours that have surfaced around the stock in recent months.

The rumour mill has been powered by the uncertainty around the Sky stake, whose fate will be decided by the Competition Appeals Tribunal. Analysts expect the tribunal to order a sale, which would give any potential buyer an attractive entry point in to the company. The talk took ITV to a high of 48p, up 3p. At the close, the stock, which began trading on the FTSE 250 yesterday, was up 0.25p at 45.25p. Sky was down 2p at 441.5p.

Overall, following early heavy losses on Wall Street, the FTSE 100 was down 75.04 points at 5,236.26 while the FTSE 250 lost 197 points to 8,785.7.

The banking sector was mostly weak as investors awaited the details of the American bailout plan. JP Morgan downgraded Lloyds TSB, down 10.75p at 275p, and Royal Bank of Scotland, up 2.5p at 216p, to "underweight" from "neutral". Bradford & Bingley was the strongest, up 1.8 per cent or 0.5p at 28.25p, after weekend reports suggested the Financial Services Authority, the UK market regulator, was scouting for a "white knight" for the mid-cap mortgage lender. Despite the share price strength, analysts remained cautious.

JP Morgan, which maintains an "underweight" rating on B&B, removed its target price for the stock while Panmure Gordon reduced its target to 7p from 20p, maintaining a "sell" rating. Collins Stewart, which has its target for B&B under review, also advised investors to "sell".

Firmer commodity prices lifted Rio Tinto, which was up 72p at 4,240p. Vedanta Resources, up 42p at 1,704p, and BHP Billiton, up 32p at 1,479p, were also strong last night. The Platinum miner Anglo American was left behind, however, falling by 54p to 2,327p, after Citigroup reduced its target price for the stock to 3,900p from 4,000p.

Elsewhere, Enterprise Inns began trading on the FTSE 250. It was an uninspiring start for the pubs group, which closed down 11.67 per cent, or 26.5p, at 200.5p after Credit Suisse reiterated its negative view on the company. The broker lowered its target price for the stock to 225p from 310p, citing more conservative revenue estimates and the likely cost of the company's bank debt after it is refinanced in 2011.

Credit Suisse also weighed-in on Punch Taverns, which slipped to 212.75p, down 23.75p, after the broker trimmed its target for the stock to 230p from 290p.

On the upside, UBS upgraded the software group Misys to "neutral" from "sell", helping the stock advance 3p to 133p. The stock was hit after Lehman Brothers, which was advising Misys on financing the Allscripts acquisition, declared bankruptcy. But last night UBS said while it may cost more, funding should not be an insurmountable issue.

Housing issues were weak following another grim survey of UK house prices from the property website Rightmove. The news spooked investors and Taylor Wimpey was hung out to dry, down 13.18 per cent, or 7.25p, at 47.75p. Bovis Homes was down 39.5p at 480p and Barratt Developments lost 6p to 142.25p.

Among smaller companies, the engineer Bateman Litwin slumped to 42p, down 41.26 per cent, or 29.5p, after revealing that, in the course of audit work for the 2008 financial year, it had discovered "certain new information which could lead to potential cost over runs and possible goodwill impairment charges". The company did not specify the impact of the new information, noting only that the size of the adjustments is likely to be "material". Bateman said it will make a further announcement "as soon as practicable".