Market Report: Barclays lifted by talk of tie-up with ABN Amro

Barclays was the talk of the Square Mile yesterday as word spread through dealing rooms that the UK's third biggest bank might be about to make a move for ABN Amro, Holland's largest banking corporation.

Speculation about a tie-up between the two has been around before. Barclays is said to have held preliminary merger talks with ABN four years ago. Despite the failure of the negotiations, analysts believe a marriage still makes great strategic sense.

One analyst said: "By acquiring ABN, Barclays would gain access to fast growing markets like Brazil, a decent US franchise around Chicago, and a sizeable Italian presence with over 1,000 branches.ABN's corporate bank can easily be folded into Barclays Capital."

ABN, which is listed on Amsterdam's Euronext Stock Exchange, has been on bid alert for much of this week. Yesterday, its shares continued their rise, adding €0.11 to €22.50 (£15.16). Barclays rose 3.5p to 680p. In May, Rijkman Groenink, the chief executive of the Dutch bank, said he would consider selling it should a potential buyer offer 40 per cent more than the current share price.

ABN operates in 58 countries, including its main markets in the Netherlands, the US Midwest and Brazil. Its shareholders are likely to welcome any takeover offer. The group's stock has barely risen since Mr Groenink took over at the helm in 2000.

Morrison Supermarket seemed to be on most trader buy lists ahead of next week's interim results. Shares in the supermarkets operator roared to near the top of the FTSE 100 leaderboard, up 4.5p to 230.75p, on hopes Thursday's statement will make pleasant reading for shareholders.

The excitement around the stock was supported by comments from leading City brokers. UBS ushered its clients into the stock, telling them to expect Morrison to report a pre-tax profit of around £120m, compared with £34m last year. It believes the group has benefited from strong market conditions.

UBS said: "The hot summer increased demand for fresh produce, which is positive for profit margins, whilst the World Cup boosted sales during June." UBS also told investors to expect converted Safeway stores to provide a boost.

Morrison is very much in recovery mode, having spent years struggling to properly integrate its purchase of Safeway. UBS believes if the recovery programme fails, the supermarket group will be vulnerable to a bid from private equity.

Standard Chartered also benefited at the hands of the Swiss broker. It shares added 24p to 1,349p after UBS upgraded the emerging-markets bank to "buy" from "neutral" and set a 1,550p price target. The majority of the developing countries which Standard Chartered has exposure to are booming. UBS said the group's next set of results are likely to impress the City. Elsewhere in the banking sector, HBOS rose 36.5p to 1,050p, Northern Rock added 29.5p to 1,165.5p and Alliance & Leicester gained 21p to 1,060p.

Solid gains on Wall Street help the blue-chip index make up most of the losses it suffered in early trading, leaving the FTSE 100 down just 0.2 points at 5,877.0. Across the Atlantic, investors welcomed data which showed that US inflation remains in check, thanks to a moderating economy. The mining sector had a bad day as commodity prices lost ground across the board. Kazakhmys fell 36p to 1,207p, Antofagasta dropped 14.25p to 440.5p, Rio Tinto slipped 89p to 2,432p and Xstrata gave up 72p to 2,160p.

Brisk trading in Stagecoach, up 3.5p to 126.5p, spark talk of a possible merger of the transport group with the rival National Express, 2p better at 883p. More than 19.5 million Stagecoach shares changed hands. However, analysts urged caution. They pointed out that such a tie-up is likely to face significant regulatory hurdles.

Profit-taking following Thursday's bid approach for John Laing left shares of the construction group 7.75p lower at 323.25p. Collins Stewart argued that punters should use the weakness in the stock as a buying opportunity. The broker said: "We regard Laing as a pretty unique business, both in terms of the size of its PFI portfolio, its successful bidding track record, and the international bidding opportunities that it possesses. Assuming a bid proceeds, we see a takeout price of less than 370p as unlikely."

At the smaller companies end of the market, Bond Software dropped 2p to 133p after Steve Russell, its chief executive, sold 1.1 million shares (or 4 per cent of the company) at 134p.