FTSE stays shy of 6,000; M&A talk persists

22 Mar, 2006

Britain's top share index ended flat on Tuesday, again short of the key 6,000 level as resource stocks fell, although the bid talk which has recently boosted shares to 5-year highs lingered.
Anglo-Dutch steelmaker Corus was the most sought after UK blue chip, charging up 11.2 percent after a newspaper report that it had held merger talks with Russia's largest steel firm, Evraz Group.
Corus had no comment on the report, which quoted an unnamed person familiar with the situation as saying the talks had so far not yielded any results. The shares got an additional lift after UBS raised its target price for the stock.
Telecoms company Cable & Wireless was subject of a fresh round of bid talk, spiking up on speculation that mobile giant Vodafone had a 130 pence a share bid in mind. Vodafone quickly denied the talk but C&W, a recent favourite on the view that France Telecom might want to bid, held gains to close 6.4 percent up at 112-3/4p.
"It looks as if people are putting a bit of the bid premium back into Cable & Wireless. There's all sorts of talk around apart from Vodafone...France Telecom and a leveraged buyout," said a market maker.
The FTSE 100 index closed 0.4 points lower at 5,991.3, again failing to close above the 6,000 level for the first time since March 2001, despite crossing it twice since last Friday. Shares edged up from session lows of 5,956.7 after Wall Street stocks pushed ahead after a steady opening.
John Smith, an investment director at investment bank Brown Shipley said the 6.6 percent rise in the FTSE 100 since the beginning of the year had been a solid return although he was sceptical the FTSE could hold above 6,000 for long.
"We'll probably see it go above again and stay above for a week or two but you get the feeling at the moment if you take away the prospect of bids there isn't that great an enthusiasm in genuine investment cases and profits growth," he said.
"At the moment we're probably buoyed up by expectations of the next deal, which is mature bull market thinking. We've had a good three years. How many people if you'd asked them three years ago would FTSE gain 3,000 points in three or four years? Most people would have said: 'No chance'."
Declines in the miners and oils held the FTSE 100 back as crude slipped below $60 a barrel, extending Monday's slump on forecasts for another rise in US crude stocks, which countered concern that tension over Iran's nuclear programme might disrupt supply.Oil majors BP and Royal Dutch lost around 0.5 percent each, while among the miners Xstrata fell 2.1 percent and BHP Billiton lost 1.5 percent.
Shares in Kingfisher had an erratic day, initially falling 1.8 percent after the owner of do-it-yourself chain B&Q revealed a big hit to annual earnings and weak consumer demand. The shares later rallied to be up 2.1 percent as dealers said a lack of negative news from an analyst conference call provided a reason to buy.
"They gave the impression they are well-prepared for an upturn in the market," a dealer said, while others added investors had closed out short positions taken out recently in anticipation of pressure on the firm's results.
First-half earnings from plumbing and heating equipment supplier Wolseley also disappointed investors, leaving its shares flat on the day.
Midcap telecoms caught some of the bid fever around Cable & Wireless with Colt Telecom rising 5.7 percent, even though many in the markets were sceptical Vodafone would move for C&W.
A Vodafone spokesman said the company had no intention of making a bid for Cable & Wireless and stated it had no intention of owning any fixed-line assets.
Broker research helped some stocks, including Rentokil, up 2.1 percent after UBS raised its target price on the services group. WPP rose 1.6 percent after Citigroup increased its target on the advertising company.

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