Market Report: Rumours of Buffett interest buoy Lloyds TSB

Lloyds TSB was among a clutch of FTSE 100 stocks tipped as takeover targets in yesterday's buoyant trading session, and Warren Buffett, the US investor, was rumoured to be buying a stake in the high street bank.

According to the gossip-mongers, Lloyds has attracted the attention of the billionaire "Sage of Omaha" after a prolonged period of undervaluation. The bank has the highest dividend yield in the sector, weighing in at 7 per cent, compared with about 4 per cent for the rest.

Many of those who thought the story had a ring of truth also thought that if Mr Buffett is snapping up Lloyds TSB shares, an outright takeover may not be far behind. Its stock closed up 13.25p at 516p - its highest level since 2002 - in twice the usual volume of trading. Standard Chartered, also tipped recently as a takeover candidate, was up 34p to 1,406p.

Other FTSE 100 banks also rose in the run-up to what is expected to be a cautiously optimistic results season, beginning next week. Northern Rock, always first out of the traps with its results, was 5.5p better at 937.5p, and HBOS rose 7p to 960p.

There were gains across the energy sectors, as Gazprom's deputy chairman continued a round of interviews about the Russian gas giant's hunt for acquisitions. International Power was yesterday's favoured candidate to be taken over by the Russians, soaring 14p to 276p. Gazprom has also been linked with Centrica, up 6p to 264p, and ScottishPower, 4.5p sparkier at 575p.

And that wasn't the half of the takeover chatter. Below the FTSE 100 there were bid stories surrounding: Aberdeen Asset Management, up 5.5p to 150p on talk that the recently floated New Star Asset Management, up 1.5p to 328p, might take a pop; CardPoint, which was 2.5p richer at 90.25p amid talk of consolidation among the cash machine operators; and Mitchells & Butlers, the pubs business of the old Bass empire, whose shares were up 12p to 405p.

The return of all this merger and acquisition speculation underlined the shift of mood from the previous trading sessions, and the FTSE 100 rebounded by 29.5 points to 5,693.2.

But Vodafone shares fell for the sixth session in a row, and brokers and hedge-fund managers tipped its stock as a "sell" before key performance numbers due on Tuesday. There is a widespread view that these figures - which measure subscriber numbers and average customer bills - will fail to meet the City's published forecasts. Vodafone's Japanese subsidiary is struggling to keep up with its rivals and European markets, including the UK, were exceptionally competitive over Christmas. Shares in Vodafone have slipped 7 per cent since the middle of last week, and yesterday they were the worst performers in the FTSE 100, falling 2.25p to 121.25p.

Traders believed that Shire, the pharmaceuticals firm, is edging closer to an important deal over its best-selling medicine, Adderall. Shire faces a court showdown over patents on the treatment for hyperactive children, and most analysts think copycat competitors will be on the market within months. But Shire has been talking to Barr Laboratories, the drug maker threatening the first launch, and a stay of court proceedings against a second firm in the US overnight suggested a settlement might be imminent. The likely shape of a deal might see Shire and Barr share revenues from Adderall for the next couple of years. Shire shares rose 23p to 835p. Elsewhere in the pharmaceuticals sector, an end to the bearish stance of CSFB's respected analysts could not stop AstraZeneca from falling a further 12p to 2,667p.

Early trading on the New York commodities market sent copper to a new high, and miners of the metal, which is proving so precious to Chinese industry, were in demand on the London equity market. Kazakhmys, which owns copper mines in Kazakhstan, was the FTSE 100's best performer, up 45.5p to a record 861.5p, and Antofagasta, which operates in Chile, jumped 48p to 1,915p. The more diverse mining companies were also on investors' buy lists, with BHP Billiton, 38p stronger at 1,025.5p, and Rio Tinto, up 103p to 2,890p, hitting fresh all-time highs.

The buoyant South African economy was behind share buying in two of the successful financial companies from that country which have listed in London. Old Mutual, the banking and life insurance group, rose 5.25p to 179p, while Investec, an investment bank, was up 155p to 2,700p. Investec's next figures should be robust thanks to the merger and acquisition boom, and investors were seeking other beneficiaries across the financial markets. Corporate Synergy, which advises some of AIM's smallest companies, was said to have had its busiest-ever months, and was up 0.75p to 27p.