Market Report: AstraZeneca is a star on talk of Novartis bid

AstraZeneca was among the leading FTSE 100 gainers, adding 33p to close at 2,607p, as talk of a bid from its Swiss rival Novartis did the rounds. Novartis has a market capitalisation of about £85bn, more than double that of Astra. There was also talk of a bid from its UK rival GlaxoSmithKline, although some traders thought regulatory issues might prevent a bid.

Many brokers have been downbeat about AstraZeneca's prospects as the group is generally considered to have the weakest pipeline of new drugs among the major pharmaceutical players, an opinion highlighted by recent analyst notes from Merrill Lynch, Collins Stewart and Dresdner Kleinwort Wasserstein. Recent results were no more than in line with market expectations and the company has decided to pull the plug on Exanta, an anti blood-clotting drug, on safety concerns. One trader said: "There is no doubt that Astra is the favourite target among the large pharmaceuticals and Novartis might be sniffing around, perhaps considering giving shareholders an exit. But other than a possible bid there seems to be little reason to buy the shares."

The best performer in the FTSE 100 was the volatile online gambler PartyGaming, up 4.25p to 123p. The Dutch broker ABN Amro upped its stance on the stock from "hold" to "buy" and increased its price target to 160p. The broker says the group should still grow despite slowing growth in internet poker, and its recent acquisition of EmpirePoker from Empire Online should add another 69,400 active customers to its books. The rival 888 Holdings was also well bid, adding 5p to close at 191p.

News of a £21bn bid by the German water and electricity utility E.ON for its Spanish rival Endesa sent London utility stocks soaring. That bid trumped an offer from Gas Natural, which traders speculated would now look to the UK for targets, assuming it does not raise its bid for Endesa. The current takeover favourite Centrica, which reports full-year results tomorrow, was in positive territory, rising 15.5p to a high of 311.5p. But profit-taking saw the shares decline in the afternoon to close only 1.25p higher at 297.25p.

Other utilities also benefited, with International Power up 9.5p to 284.5p, Scottish & Southern Energy rallying 16.5p to 1,157p and the Ulster utility Viridian climbing 14p to 1,029p.

The surge in energy stocks initially led the FTSE 100 higher - it touched 5,888 in early trade - before a dull opening on the Dow Jones dragged the market lower, closing down 5.3 at 5,857.7.

Another bid story also resurfaced, this time between insurance rivals Prudential and Aviva. One analyst said: "This is an old one but a story that has reasonable logic behind it. There has been talk of regulatory issues but most market traders feel that with one or two minor concessions it would get past the regulators." The Pru closed 12.5p higher at 617.5p, while Aviva climbed 8p to 760p.

The cruise liner Carnival was hammered as Credit Suisse cut the stock from "outperform" to "neutral", saying that a survey of large online and off-line booking agents had shown weaker than expected bookings. It also cuts its target price on the stock from 3,400p to 3,200p. Carnival shares tumbled on the news, closing 146p lower at 3,124p.

Mining stocks remained in focus as Dresdner upped its target price on Lonmin to 2,900p, highlighting the company's strong asset base in a long-term growth market. But the upgrade could not prevent the stock from giving in to more profit-taking after its recent bid approach and it closed 84p lower at 2,529p.

The aviation and materials science group BBA led the mid-market fallers as it revealed it had failed to find a buyer for its Fiberweb business. Some analysts had been expecting the unit to fetch up to £750m, leaving the group as a pure aviation play and therefore open to a bid. The shares fell 11.5p to 295.25p on the news.

The investment trust Blue Planet UK was among the leading fallers in the small cap index. The company was trading at 245p on Monday's close but revealed a net asset value of 211p soon after the market shut. The stock is heavily weighted towards Russian and Brazilian banks and closed down 21.5p, having hit a mid-session low of 195p.

Optimistic Entertainment lived up to its name. The stock was tipped on an internet bulletin board and market makers reported lots of scrappy buying. The stock is thinly traded, with only three market makers, but the buyers outweighed the sellers by seven to one as the stock rallied 61.5 per cent to close at 42p, a rise of 16p.