Market Report: UBS puts Morrison's in its shopping basket

For the second time in less than a week, a major City brokerage suggested that Wm Morrison is doing well with the integration of Safeway and it did wonders for the supermarket group's share price. Morrison ended the day as the best performer in the FTSE 100 index.

For the second time in less than a week, a major City brokerage suggested that Wm Morrison is doing well with the integration of Safeway and it did wonders for the supermarket group's share price. Morrison ended the day as the best performer in the FTSE 100 index.

Morrison jumped 7p to 237p as UBS unveiled research claiming that since February the group has successfully implemented an 8 per cent reduction in the cost of an average basket of goods at Safeway stores. As a result, the broker believes Morrison is well on the way to achieving the necessary price reductions at the recently acquired chain, which it believes should now be able to achieve a 9 per cent rise in volumes. UBS urged its clients to buy into the company.

Along with positive news on the pricing front, UBS hinted that initial results from store conversions at the supermarket giant look to be a runaway success. Trial store refits, of which there have been four so far, on average generate a rise in sales of 40 per cent, says the broker. The bullish stance from UBS comes after of similar comments from ABN Amro last week. It also talked of a strong upturn in trading at Safeway.

Elsewhere, BT Group gained 5.5p to 194p as its chief executive, Ben Verwaayen, and finance director, Ian Livingston, set off on a charm offensive of the City. Given the share price's response, it certainly seems to be working. More than 379 million shares changed hands as institutional investors were heard to be piling into the stock. Also supporting the rise was the fact that BT shares crossed the technically important 190p level, which led to a wave of buying from momentum investors. Meanwhile, the FTSE 100 jumped 32.5 points to 4,491.1.

Yet again bid speculation surrounded MFI, up 8.75p to 161p in heavy volume. The latest story to circle the retailer talked of a bid for the group's furniture retailing division from GUS, up 13p to 843p. The logic behind such a move is that once GUS has secured control of the business it can then merge it with its Homebase operation, say market gossips. Such a scenario would leave MFI to concentrate on its Howden builders' merchant, which is viewed as the jewel in the company's crown and is tipped to achieve impressive growth in the years to come.

Marks & Spencer jumped 6.5p to 363.5p as rumours swept the market that Philip Green was about to return with a cash offer of between 385p and 395p a share for the retail giant.

M&S traded as high as 370.5p yesterday on the back of the rumour but market professionals reported heavy shorting of the stock before the close by a clique of hedge funds which are convinced that the entrepreneur will fail to win control of M&S.

The company confirmed it had indeed received, and rejected, a fresh approach from Mr Green last night after the market closed.

Among small caps, Evolution Beeson Gregory warned investors that NXT, the flat panel speaker developer, will soon require a fund raising. NXT fell 13p to 99p as the broker pointed out that the company is haemorrhaging cash and that significant revenues at the group appear to be several years away.

Evolution calculates that NXT had £12m of cash at the end of last year and that it has a burn rate of about £750,000 per month. This means that the group will start running out of money next year and will need to a raise fresh cash later this year, according to the broker.

Evolution's comments follow presentations by NXT of its technology to City analysts. The broker described the company's offering as "attractive but not compelling" and yesterday expressed concerns that NXT may have spread its resources too thinly in terms of product development.

Skiddaw Capital gained 0.75p to 19p after the company unveiled the acquisition of a variety of oil and gas assets in Pakistan, the Middle East and the United States. Although the company gave little indication of how much money these assets will make for Skiddaw, market professionals reckon it will run into tens of millions of pounds.

Investment Management Holdings put on 0.25p to 3p after its chairman, Keith Harris, picked up 800,000 shares at 2.75p. The legendary investor Nigel Wray, who is a non-executive at the group, acquired the same amount of stock at the same price. There was also director share-buying at CSS Stellar, 1p better at 50p. Sean Kelly, the chief executive, bought 10,000 shares at 48.5p.

Digital Classics put on 0.13p to 1.04p amid heavy buying. Dealers reported whispers that a flow of positive news is on the way from the group in the near future.

Investors should keep an eye on Pavilion Insurance, which is due to makes its debut on AIM today. The specialist insurance group is tipped to raise £550,000 via a placing at 5p and dealers expect brisk trade in the stock.