Market Report: Sainsbury's in focus as QIA rumours swirl

The supermarket group J Sainsbury saw its shares jump by nearly 20 per cent at one point yesterday as unconfirmed rumours of bid interest from the Qatar Investment Authority, the Qatari sovereign wealth fund whose Delta Two fund abandoned a 600p per share bid for the business in 2007, did the rounds of the dealing rooms.

The chatter has been around numerous times before, and, when the rumour first surfaced yesterday, most traders were sceptical. But many soon changed their tune as the stock, which closed at 311.1p on Wednesday, climbed as high as 373p in early afternoon trading. There was no comment from either party, as traders highlighted talk that QIA, which, with a 26 per cent stake, is the supermarket group's single largest shareholder, was prepared to offer up to 420p per share.

Roger Jenkins, the former Barclays executive, was rumoured to be advising the Middle Eastern investors. Amanda Staveley, whose PCP Capital Partners advisory firm acted for Sheikh Mansour bin Zayed al-Nahyan, a member of the Abu Dhabi royal family, when he came in to aid Barclays with a capital injection last year, was also rumoured to be involved.

The chatter died down as the session came to an end, with Sainsbury's closing well off its highs at 342.5p, up 10.1 per cent or 31.4p. The shares did, however, close at first place on the benchmark index. In terms of volume, Sainsbury's was the fourth highest traded blue chip of the day.

Overall, the FTSE 100 was 33.15 points behind at 5,222.95, while the FTSE 250 eased to 9,485.17, down 56.16 points, as investors took the chance to bank profits from Wednesday's gains. Tim Hughes, the head of sales trading at IG Index, said the pullback did not change the overall trend for UK equities, which "remains firmly up".

"The Sainsbury's chatter is one sign that mergers and acquisitions activity can be expected to pick up over the months ahead, and this is the sort of thing that will keep investors keen to buy into any short-term weakness," he said. "Today looks like just a pause in the ongoing strength for shares, and many traders are still looking to the 5350 mark as the next significant Footsie target."

The mining sector, which led the way on the day before, fell back, with Anglo American declining to 2216p, down 4.1 per cent or 95p, after Xstrata, down 21p at 1010p, said it had no intention to make an offer for the group. In the wider mining space, Rio Tinto lost 52p to 2946p and Vedanta Resources retreated to 2369p, down 20p, as MF Global sounded a note of caution, saying the sector rebound "now appears to be ahead of fundamentals".

"We believe an adjustment of up to 20 per cent is overdue and should offer a good buying opportunity looking into next year," MF said. "Investors should start to become selective, focusing on commodities close to their marginal cost. In essence, we are now stepping back from our previous theme of moving up the risk curve."

Elsewhere, the banking sector was also weak, with Barclays easing to 379.9p, down 3.7p, and Lloyds Banking Group edging lower by 1.65p to 91.41p as a round of profit-taking and lacklustre results from Citigroup overshadowed a positive update from Goldman Sachs. Royal Bank of Scotland was 0.17p lighter at 48.16p.

On the upside, Evolution boosted sentiment around 3i, the private equity group, which gained 12p to 308.7p after the broker began covering the stock with a "buy". "While it was tempting to initiate with a 'neutral' recommendation given our fears about near-term market risk, we feel 3i is at levels where investors can access a well-positioned private equity business towards the bottom of the industry and valuation cycles," Evolution said, setting a 375p target on the company's stock.

The luxury goods group Burberry, which jumped ahead after a first-half trading statement earlier in the week, continued to draw steam from the update, rising by 11p to 576.5p. The shares touched a session high of 592.5p as various brokers weighed in, with Deutsche Bank raising its target for the stock to 625p, Evolution upping it to "buy" from "neutral" and JP Morgan revising its target to 540p, compared to 480p previously.

Further afield, Evolution was also responsible for the cheer around Fidessa, the software company, whose shares gained 47p to 1227p after the broker switched its stance to "buy" from "neutral". "Fidessa shares have lagged the sector in the last quarter following no upgrade at the interims, but we suspect underlying capital market conditions have improved this quarter, and any reference to this in the third quarter [update] expected [next week] could be a catalyst," the broker said, revising its target for the stock to 1430p, compared to 1000p previously.

On the downside, the pubs group Punch Taverns, which fell by more than 16 per cent after issuing final results on Wednesday, lost another 6.9 per cent or 6.65p to 90p. Citigroup, which said the results were 3 to 4 per cent below its forecasts, reduced its target price for the stock to 110p from 125p, saying it remained cautious about the fundamentals of tenanted pubcos.