A fresh rash of bid talk around banks and a surge in mining stocks after results from Kazakhmys powered the FTSE 100 index back above the 6,000 level on Thursday after big losses at the start of the week.
The London-listed Kazakhstan copper miner closed 9.3 percent higher after reporting a better-than-expected 41 percent rise in underlying profit and giving an upbeat outlook for already record-high copper prices in 2006.
Traders reported bullish remarks feeding back from Kazakhmys meetings with analysts but pointed out that the shares were highly illiquid and were thus being squeezed higher.
"Kazakhmys has got a very small free float. It's a pure copper play, the copper price is breaking higher, it's getting the life squeezed out of it," said a trader.
Other miners caught the bullish mood, supported by copper and zinc prices which stayed near new record levels, with BHP Billiton, Rio Tinto and Xstrata up by around 5 percent.
Dealers said the day's business had been volatile as the quarter and tax year-end approached, adding that Friday could see even more choppy trading.
"Today's been hectic and all about the miners. We've got the end-quarter tomorrow and it could be even worse. I've got a coin in my hand - you call whether the market's going up a hundred points or down a hundred points on Friday," said a trader.
The FTSE 100 closed 56.0 points higher at 6,015.2, its biggest one-day points gain since early February, with a big boost coming from banks which saw bid talk support Alliance & Leicester and Royal Bank of Scotland, both up 2.3 percent.
A newspaper report said Alliance & Leicester had rejected an informal approach from France's Credit Agricole and there was also talk of a bid for Europe's third-biggest bank RBS from a US rival.
Graham Secker, UK equity strategist at Morgan Stanley, said he saw signs that some of the market's momentum could fade in the medium term.
"We think equities are a little bit above fair value but they're not ragingly expensive. There's still a bit of M&A sloshing around there, the very near term outlook for the market doesn't look too bad," said Secker.
"We're still looking towards the next results season and maybe some earnings disappointment as the first catalysts that might start to knock the market back a little bit," he added.
Midcap shares were abuzz with bid speculation, with engineering firm Invensys up 6.7 percent on talk that German industrial conglomerate Siemens might be interested. Dealers said Invensys's pension funding plan, announced Wednesday could make the company more attractive to a potential bidder.
Invensys and Siemens declined to comment on the speculation.
Shares in speciality publisher and conference organiser Informa closed 3.7 percent higher boosted by talk of an imminent bid for the company at 550-600 pence a share.
London Stock Exchange was a major midcap casualty, dropping 6.8 percent after US exchange Nasdaq said it was withdrawing a planned bid for Europe's biggest stock market. The move made it the fourth suitor in a year to abandon pursuit of LSE.
Away from the take-over speculation, health and beauty retailer Boots climbed 1.6 percent after beating analyst expectations in the fourth-quarter, leading them to raise full-year profit forecasts. But software group Misys was knocked 4.9 percent lower as it ended talks with potential buyers of its Sesame unit, the financial support services arm, after failing to agree a price.
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