Market Report: Bid rumour starts a stampede for Lloyds TSB

The rumours of a bid for Lloyds were prompted by unusually high demand for its September call options. These are only worth something if the bank's shares trade above 500p on their expiry date. Given where Lloyds TSB shares presently stand, only a takeover approach is likely to push them to such a level.

In the cash market, more than 69 million Lloyds shares were traded, compared with the 40 million seen on an average day.

So who does the City believe is most likely to buy the UK retail bank? America's Wells Fargo & Co was the name most often mentioned by traders yesterday. It has a large presence in the retail banking market across the Atlantic and almost no exposure to the UK. There is already a link between the two companies. Earlier this year, Lloyds hired Terri Dial as head of its UK retail division. Previous to this she spent 28 years at Wells Fargo, most recently as head of its retail business. Traders suggested she might be the person to broker a tie-up.

However, some analysts were slightly sceptical about the story. They noted that Lloyds, under the leadership of Eric Daniels, is focused on boosting its sales while its previous management had looked to make money via takeovers and cost cuts.

Centrica - which on Wednesday was being talked of as likely to be soon taken over - fell 1p to 251.75p. Dresdner Kleinwort Wasserstein warned that the stock could fall sharply if a takeover does not emerge over the coming months. The German broker said: "Centrica is short of gas in a rising oil and gas price environment and may struggle to pass these costs on without losing customers and seeing its profit margins suffer." It is sceptical that a bid for the company will emerge from the likes of Norsk Hydro, Gaz de France or Eon.

Sage was in retreat for the second successive day, falling 3.5p to 227.25p, after cautious comments from its US peer Intuit. The American software group scaled back its earnings forecasts for next year. This comes amid growing concern that Sage could face tough competition from Microsoft, which will next month launch a product to rival Sage's offering of accountancy software for small businesses.

Tesco jumped 5.75p higher to 331.5p as Goldman Sachs found that for the first time since starting its study of grocery prices in the UK, the supermarket group's offering is cheaper than that of arch-rival Asda. The US broker believes Asda's extensive internal restructuring programme may have resulted in its new management team taking its eye off the ball on pricing, with Tesco successfully exploiting that weakness. Goldman said: "This further demonstrates the company's ability to benefit from its virtuous circle of increased volumes, better terms from suppliers and lower prices." The wider FTSE-100 index had a volatile session. It started the day sharply lower but clawed back a good chunk of these losses to finish down 19 points at 5,255.7.

Charter rose 12p to 328p after unveiling plans to take control of its South American welding and cutting division. The business is spread across Brazil, Argentina and Chile. Charter is due to post first half results on 28 September and word has it the figures will impress analysts. Trading is said to be buoyant at the engineer, especially at its China joint venture. UK Coal gained 6.5p to 145.5p as it emerged that the US financier Wilbur Ross had raised his stake in the group to 5.5 million shares, or 3.7 per cent. The Wall Street legend has made a fortune from investing in coal, steel and textiles companies.

Among smaller companies, Shield Capital confirmed that it is planning the acquisition of Aspen Clean Fuels and asked for its shares to be suspended at 8.12p as it works on the terms of the deal, which will be structured as a reverse takeover. Aspen is a Swedish company, founded in 1988, and is a leading supplier of environmentally friendly fuels used in motorised tools and certain engines. The business is profitable and fast growing.

Densitron Technologies rose 0.38p to 7.25p after Ralph Baber, its chairman, disclosed the purchase of 500,000 shares at 6.5p. Quantica, steady at 61p, unveiled the acquisition of recruitment firm RK Group for £12.3m. To finance the deal, Quantica plans to raise £10m via a placing of 18.1 million new shares at 55p.

Finally, Titanium Resources had its maiden session on AIM and enjoyed strong demand for its stock. The mining group, which has two sizeable projects in Sierra Leone, raised £37m via a placing at 47p and saw its shares close at 52.5p.