Market Report: Premier Foods seen as a tasty target for Kraft

Premier Foods was on the menu yesterday after mid-afternoon rumours suggested that the FTSE 250-listed food producer had attracted the interest of Kraft, the maker of Oreo-branded cookies and Philadelphia cream cheese.

Speculation swirled that the American food and drinks giant is mulling a bid for Premier, lifting the UK group's shares nearly 5 per cent at one point, even though the vague talk bore no clues about the level of an offer or its timing.

Analysts remained sceptical, however. "To me, the takeover potential of Premier Foods just does not look good," said Clive Black at Shore Capital. "It's got high levels of debt and there are issues with the pension, which would mean that the pension trustees will play a major role in any talks," he said, adding: "But, it would be arrogant to dismiss it straight away – stranger things have happened."

Premier Foods shares closed up 3 per cent, or 3.25p at 128.75p, having climbed as high as 131.5p.

Meanwhile, in the mining sector, Chinese whispers took BHP Billiton to 1,865p, up 95p. New reports in the Australian press fuelled speculation that Beijing-backed investment vehicles were preparing a $22bn (£11bn) dawn raid on BHP stock, quashing the company's hopes of combining its business with rival Rio Tinto.

Rio Tinto was strong too, rising by 360p to 6,367p owing to separate speculation that BHP would sweeten its bid with a significant cash offer.

Overall, the FTSE 100 remained upbeat, gaining 139.3 points, or 2.4 per cent, to 6,046.2. The London benchmark was kept firm by financial and mining stocks, which dominated the leader board yesterday. Early gains on Wall Street also lifted investor sentiment. The FTSE 250 climbed 187 points, or 1.9 per cent, to 10,091.2.

The banking sector rallied, drawing strength from an in-line earnings report from JP Morgan in US and from market chatter that the Bank of England might offer to swap certain mortgage-backed bonds presently lodged on lenders' balance sheets for more secure government bonds. Royal Bank of Scotland was the strongest, climbing by 26.50p to 375p and claiming second place on the FTSE 100 leader board. Barclays was just behind, adding 30p to 479p. Others in the sector, including Standard Chartered, which rose by 36p to 1716p, HBOS, which was up 25p at 539.50P, and Alliance & Leicester, which gained 31.50p to 503p, were also strong yesterday.

On the FTSE 100, Tesco, which soared after publishing strong preliminary results on Tuesday, fell as Merrill Lynch downgraded the stock yesterday. "Tesco remains a long-term growth story," the broker said, adding: "We continue to support the story but after the shares' welcome recent rally; lacking any obvious near-term meaningful catalysts for further re-rating; and with possible further turbulence from the UK consumer and financial markets, we cut our stock rating from 'buy' to 'neutral'." Tesco closed down 1.25p at 418.25p

On the FTSE 250, Bellway gained 38.50p to 799p after a glowing assessment from Panmure Gordon. While noting that house builders are set for a "difficult" year ahead, the broker said that "the negative outlook for the sector is more than fully reflected in Bellway's share price".

Panmure added: "The group has outperformed peers in the down-cycle to date, thanks to its aggressive forward-selling strategy and good geographic spread, and its broad affordable product mix should help it withstand any areas of particular weakness ... we initiate coverage of Bellway with a 'buy' recommendation."

Hopes that the Bank of England may intervene to stimulate the mortgage market helped other house builders. Barratt Developments climbed by 15p to 364.75p, while Bovis Homes rose to 542p, up 14p. Persimmon gained 23p to 682p and Taylor Wimpey added 6.75p to 165p.

On AIM, Ishaan Real Estate, the India-focused property company, was up 1.75p to 92p after Numis Securities initiated coverage on the stock with a "buy" rating.

"We recently visited the majority of Ishaan's portfolio in Mumbai and Hyderabad and were impressed by the quality of assets," the broker said, adding: "Our research suggests that market conditions remain favourable for the group's developments."

Trikona Trinity Capital, on which Numis maintains a "buy" rating, remains the broker's key pick among UK-listed, India-focused developers. "We favour the portfolio mix as amongst the strongest in the peer group as it offers exposure to seven asset classes, substantially de-risking returns in our view. Furthermore, TRC clearly has the best delivery record in terms of achieving full investment and reaching the capital recycling stage," Numis said. TRC closed up 0.75p at 109.50p.