Market Report: Takeover talk adds fizz to Punch Taverns

The first morning back from holiday was a muted affair until it suffered a late sell-off, and bid speculation hit the skids.

The only rumour to do the rounds was vague talk of a bid for Punch Taverns, which was one of the highest risers in early-morning trading. Despite one trader calling the story "a boring Tuesday rumour", the pub group avoided the mass sell off to close 1p higher at 1049p. Chat was that rival Mitchells & Butlers was the name in the frame, sending it down 15.5p at 704p. "This story comes and goes", the trader added.

The FTSE 100 slumped after a poor overnight performance on Wall Street, but it wasn't until the last half-hour that the panic really took hold. In the morning, traders said the market was "genuinely quiet", although in hindsight it was the calm before the storm. The index ended the day down 2 per cent to 6095.5 points.

One market participant said the credit markets were still weighing heavily on investors' minds, and the late sell-off was triggered by losses on the Dow. Mergers and acquisitions have fallen victim to the credit crunch, and rumours were once more thin on the ground. Beyond Punch Taverns, the only other talk was that Royal Bank of Scotland was considering lowering its bid for ABN Amro. Shares in the banking giant fell 18p to close at 563p, as the whole UK financial sector stumbled. Among the worst hit was Barclays, down 3.6 per cent to 589p. The UK bank slumped on reports it was exposed to several hundred million dollars of failed debt vehicles.

A bullish note from Credit Suisse failed to lift the spirits at Standard Chartered as it finished 24p weaker on 1470p.

The Swiss broker called Friday's weakness an "over-reaction" to the rumoured problems at the Whistlejacket structured investment vehicle. It added that the stock remained its top pick in the UK.

Another faller was United Utilities after it was panned in a note by Merrill Lynch, which reiterated its sell recommendation. The US broker said it "remains our least favoured quoted UK water utility group", adding the sum-of-the-parts valuation was once again set to fall below 500p.

Drax Group finished top of the leaderboard, on a day that closed with seven stocks in the black. Market makers said the price was inflated by one heavy order on a day of particularly low volume. It closed up 1.65 per cent at 645p. British Airways also took off on reports that its consortium, which includes private equity group TPG, was set to lower its bid for rival airline Iberia. The carrier ended 3.5p higher at 412.75p.

Speculation has been swirling around the London Stock Exchange since Nasdaq revealed it would sell its 31 per cent holding last week. Stories over the weekend detailing interest from Singapore fund Temasek, Germany's Deutsche Boerse and Borse Dubai had investors piling in to send the stock up 2.36 per cent to 1344p. But best performer on the second tier risers was Wood Group, which impressed the market with its interim results. The energy company rose 4.68 per cent at 352.5p on the back of a 64 per cent rise in pre tax profits. Management added that full-year sales should be well ahead of expectations. At the other end, the casino and bingo hall operator Rank Group is preparing to release its first interims after the introduction of the smoking ban on Thursday. Buyers were in short supply, and it fell 5p to 150.5p.

The small caps saw Anzon Energy storming up the table of best performers, after revealing its Australian arm had received "a number of approaches". Stock in the oil and gas group leapt by almost a third on the news, closing at 84.5p. A positive trading update sent Deal Group Media up 18.75 per cent, as the online marketer revealed it had raised £850,000 via a placing to aid expansion in Asia Pacific. It added it expects to narrow its losses this year. Traders couldn't explain the rise in executive search company Garner, as the tightly held stock saw some buying interest.

One said: "It is an illiquid stock that when it does move, tends to move fairly aggressively."

It was a bad day for Eleksen Group, which tanked 40 per cent to 12p, after issuing a profit warning. The group, which makes what it calls "smart fabrics products", said its sales forecast will be materially less than current market expectations, adding it would restructure the business to tackle overhead costs. Smart fabric products are designed to control gadgets including iPods and smartphones.

It has been a busy week for Photo-Me International, which gave back most of last week's gains to close at 60.13p. Traders fear potential buyers for its vending machine division will walk away over the internal turmoil at the group, despite the stock looking cheap. One said: "In the absence of more information it keeps going down."