Market Report: Man and Amvescap buoyed by merger talk

The big merger story of the day looks like a long shot. The word doing the rounds yesterday was that the fund managers Man Group and Amvescap are mulling a tie-up once the sale of Man Financial, the former's broking arm, is completed.

According to market sources, several investment banks including Goldman Sachs have been appointed to lead the sale of Man Financial in what could be one of the largest initial public offerings ever, worth potentially up to $7bn (£3.59bn).

The talk is that, once that is completed, Amvescap will tie up its $69bn in funds under management with Man's more specialised hedge funds to create a major force in asset management. Man's hedge fund business has performed strongly and another rationale behind the speculation is that Man Group wishes to maintain some independence rather than become a target for a larger banking group. One trader said: "This is unlikely to happen while management at Man is concentrating on the float, but it does make some strategic sense for both companies." Both stocks were bought heavily on the rumour; Man Group closed up 20.5p at 591.5p and Amvescap added 18.5p to 635.5p.

The jet-engine maker Rolls-Royce is sitting pretty on an all-time high, with some traders wondering if the time is right to take some profits. However, the broker Dresdner Kleinwort believes there is 30 per cent more upside in the shares. The German investment bank upped its target price to 650p from 550p and slapped a "strong buy" recommendation on the shares, which closed 14.75p firmer at 502.25p

Traders followed up Thursday's talk of a 970p-per-share bid for Barclays by piling into the stock on the option market. Traders reported strong buying of calls, indicating to some that the bid stories could have some substance this time. The shares surged 18.5p to 784.5p, a new all-time high, before closing 7p firmer at 773p.

A raft of positive broker comments following Thursday's upbeat corporate results boosted shares. JP Morgan and UBS both reiterated "buy" recommendations on BG Group, also buoyed by oil climbing back over $60 a barrel, sending the stock 14p firmer to 739p. Meanwhile, West LB and Deutsche Bank upped their targets for Reckitt Benckiser following its forecast-busting numbers, sending the shares 17p better to 2,612p. The FTSE 100 closed at yet another six-year high, 36.4 firmer at 6,382.8.

Recent bullish comments on Aquarius Platinum from the broker Citigroup appear to have been spot on, but its analyst will need to upgrade the price target as the shares have defied gravity since the start of the year. Citigroup gave the stock almost 40 per cent of upside when it targeted 1,400p back on 5 January, but yesterday's 65p gain to 1,465p on Wednesday's bullish trading update saw the shares surge through what at the time looked to some traders like an optimistic target.

The broker Panmure Gordon reiterated its "sell" advice on the defence contractor QinetiQ following Thursday's sale of The Carlyle Group's remaining stake. Panmure believes the shares remain expensive and warns the Government could sell its 19 per cent stake in the business. The broker reiterated its 170p price target for the shares, 2.25p worse at 207p.

The pub sector was in focus again as vague consolidation rumours did the rounds. Marston's added 16.25p to 477.25p although the volume did not suggest that a deal is imminent, and mid-cap rivals Greene King were also in demand, firming 27p to 1,183p by the close. Recent speculation has focused private-equity interest in the real estate portfolios of pub groups.

In the small-caps, the furniture and fabric retailer SCS Upholstery shocked investors with a profit warning which the firm blamed on "challenging" trading conditions. Sales for the 18 weeks to 3 February are 8 per cent lower than in the same period last year, despite a strong start to the January sales. The stock shed 85p to 405p.

The advertising agency M&C Saatchi continues to hit new highs and the word among small-cap traders is that it is trading well ahead of expectations. The last update, in the second week of December, confirmed the group has made further progress since a bullish interim results statement in September. Traders are confident of more good news and the shares nudged half a penny better to 168p.

Finally, Hexagon Human Capital, which specialises in recruiting high-level management on short-term contracts, is expected to attract strong support on its debut on AIM on Monday.