Market Report: FKI hit by uncertainty over takeover talks

Shares in FKI tanked in early-morning trading after rumours swept the market that its mystery suitor had pulled out of takeover talks. The speculation spooked investors and the stock fell more than 15 per cent, but rallied after further chat that the negotiations were, in fact, ongoing.

Several companies ran the slide-rule over FKI at the beginning of June, but only one came forward. The unnamed bidder - believed to be a private equity company - lodged a bid of 130p per share for the engineering company, well below market expectations. The negotiations are not thought to have run smoothly, and the stock has plummeted from its peak of 140p before the indicative bid. Following yesterday's uncertainty, it closed down 13.75p at 110.25p. One market maker said: "It's all smoke and mirrors at the moment. We want to see interested names and we want to see an offer document. Neither has happened as yet and the stock will continue to move in a volatile way."

Among the blue chips, Friends Provident made it to the top of the leaderboard for the second trading day in a row after confirming it was in merger talks. The move had been widely flagged on Friday, but Resolution emerged as the surprise name in the frame. Friends Provident finished almost 8 per cent higher at 201p. Traders said the rise had been strengthened by rumours of Axa wading in with a counter-bid. Resolution was up 7p at 636p.

The whole life insurance sector received a fillip as UBS put out a research note upgrading the top-tier stocks. It said the companies had underperformed for the first part of the year in the absence of takeover activity. The likely announcement by Legal & General of around a £1bn capital repatriation may serve to improve perceptions of the industry's ability to generate cash, it added. Legal & General was bolstered 4.1p to 155.3p.

The insurers helped boost the FTSE 100, which had opened positively after China hiked interest rates for the third time since March. Investors backed the move as a sensible way to prevent overheating in the economy. The Dow also opened strongly, helping the top tier to close at 6,624.4, 39.2 points higher.

With the air of concern refusing to lift from the dreaded sub-prime market, and the flood risk dominating headlines in the UK, the FTSE property and housebuilder stocks were smacked. British Land was the worst hit, finishing bottom of the pile, off 42p at 1,314p.

On the second line, traders were backing Misys as it continues the strategic review of its portfolio. The tech group yesterday sold two businesses for £202m as it looks to re-focus the business on health care as well as pay down debt and possibly buy back shares. Bridgewell said: "It is pleasing to see the company making headway with its strategic plan, though disposals such as these are necessarily dilutive." Misys closed up 5.5p at 241p

A surprise faller was Autonomy. The IT group gave back Friday's rises after a bout of profit-taking on the back of bullish second-quarter results. Citi, the US broker, also released a note, which said: "The stock is up 97 per cent in the year to date, making it the best performing stock in our universe and we would expect further positive momentum and catalysts in the second half."

Another to suffer on the second tier was Dicom Group on news it is to refocus its strategy and its chief executive is to retire. Panmure Gordon said in a note: "Shares are cheap, however the company lacks momentum as it looks to move to its new BPA market, while its core capture market looks to be going ex-growth." It added the appointment of a new chief executive could be a catalyst for a re-rating.

On AIM, the oil and gas stocks were flying. Falkland Oil and Gas revealed it was in discussions that could lead to a major resources company farming in some of its assets. The group climbed 42p to 123p. Market makers said the announcement had boosted the sector. Borders & Southern Petroleum rose 6.25p to 34p and Global Petroleum, which has a stake in Falkland, was up 1.5p to 9p. This is good news for Global, whose price tanked at the end of last year and which is hoping for good news from its well in Kenya.

Filtronic was up 29.5p at 164.5p after saying it was in advanced talks to sell its loss-making US defence business. The group has also reduced its overheads and sold property, contributing to it halving losses in the full year to the end of May over 2006. Bright Things fared worse after releasing its full-year figures. It shed 2.6p to 6p after admitting disappointing sales from its Bubble games console.