Market Report: Resolution rises on talk of bid from US giant

Rumours that AIG, the American insurance giant, is mulling a move into the UK insurance market gained momentum with traders betting that Resolution Group, the insurance fund manager, is in the firing line.

Resolution, 17.5p firmer in early deals before closing up 6p at 657.5p, first confirmed that it is in bid talks back in the second week of November. The initial statement said that the offer could take one of several combinations, including a partial sale of the group, bolt-on acquisitions or a complete sale. The word is that AIG will go for the latter, offering shareholders 850p per share, valuing the company at more than £5.8bn. One trader said: "Other interested parties could be flushed out if AIG makes a formal offer but most would be hard pressed to match an offer from a trade buyer worth $183bn."

Meanwhile, private equity group 3i led the blue chip risers thanks to a reiterated "buy" recommendation from German investment bank Dresdner Kleinwort. The analyst Bill Barnard has a strong track record on 3i believes that the company has made a strong start to the year and that the market for smaller venture capital exits is improving. Dresdner upped its price target to 1,180p, sending the shares 22p better to 1,067p by the close.

Speculation that InterContinental Hotels is about to face a bid mounted as the Barclay brothers, reclusive owners of The Daily Telegraph, picked up a 5 per cent stake in the group via their Ellerman investment vehicle. The shares shot up to 1,350p in early deals, a gain of 50p, before a bout of afternoon profit taking saw the stock close just 8p firmer at 1,308p.

Transport stocks were out of favour thanks to a combination of industrial action and higher oil prices. A proposed strike by British Airways cabin staff could result in a £135m hit for the airline if three 72-hour strikes go ahead, according to City sources, the equivalent of up to £15m per day sent the shares 8.5p worse to 536p. The weekend spike in the oil price did not help matters, and cruise ship operator Carnival, rapidly turning into the closest proxy for the oil price in the London market, shed 34p to 2,770p.

In the wider market, early buying support soon evaporated as New York shares opened to another sharp sell-off, with the Dow Jones posting triple-digit losses in the first hour of trade. The FTSE 100 went from a gain of 33 points by midday to close the session 18.8 worse at 6218.4.

A decent set of numbers last week from Weir Group, the Glasgow-based pump engineer, prompted an upgrade from the broker Merrill Lynch. The US investment bank upped its recommendation to "buy" from "hold" with a price target of 650p, telling investors that the group has the best geographic exposure of UK engineers. The shares rallied another 15p to 560p.

Ashtead Group, the plant hire operator, continues to attract buying support, thanks to an analyst visit to its Sunbelt Rentals unit in Florida. Shares in the company, widely tipped as a possible takeover target, ticked 3.25p firmer to 172p.

Although French advertising giant Publicis denied late in the afternoon that it is about to bid for Aegis, the shares still closed in positive territory, 2p firmer at 142p, as more than 12 million shares changed hands, more than double the average daily volume. The word doing the rounds is that Publicis was lining up a 170p per share offer.

News that the US department of Justice is investigating a handful of investment banks over their links with the online gaming industry sent internet gambling stocks lower. PartyGaming was the worst performer in the FTSE 250 with a 3p fall to 27.75p, with 888 Holdings not far behind as its shares shed 4.25p to 116p.

In the small caps, Aim-listed architectural group Auckett Fitzroy Robinson told investors that full year pre-tax is up 394 per cent to £786,000 based on a 29 per cent increase in revenues. The house broker JM Finn, appointed last week, initiated coverage with a "buy" recommendation and an 18-month price target of 22p. However, Auckett shareholders have enjoyed a stellar year and the shares dropped 1.25p to 16p on profit-taking.

Small cap punters are banking on some more good news from Advanced Power Components despite almost doubling since the start of the year. The shares are tightly held and an encouraging contract win last week on top of market makers being short of stock helped the shares add another 4.5p to close at 36.25p, a four-and-a-half-year high.

Six Hundred Group rallied 2p to 52.5p as a big institutional seller was cleared out of the market. The seller, Platinum Fund Managers, previously held more than 9 per cent of the company and yesterday confirmed that it no longer has a disclosable interest in the company.