Market Report: Takeover excitement propels FTSE higher

RUMOURS OF deals between heavyweight blue chips yesterday helped the market to score a handsome century.

The Square Mile's old sages are firmly convinced that London will witness two blockbuster mergers before the summer slowdown and traders were busily looking for them. The more daring minds spoke of a huge tie-up between Shell and British Gas.

The oil giant is clearly in need of a deal to keep up with its consolidating rivals and the former British Gas could be a suitable partner. Shell has large gas interests and would love to get hold of British Gas's pipeline assets.

The story seems to have originated in the Channel Islands financial community, a traditionally well-informed group. However, the Shell-BG merger rumour has so far found few takers in London where Shell firmed a mere 0.75p to 435.75p and British Gas fell 3.25p to 358.25p.

The deal that every dealing Tom, Dick and Harry is expecting to see involves Legal & General. The life insurer strengthened 8.5p to 177p in chunky turnover as talk of a takeover grew louder.

Lloyds TSB, up 11p to 900p, is still the favourite predator but Allied Zurich, 9p higher at 800p, the acquisitive French insurer Axa, and Barclays were mentioned. Supporters of the high street lender did not need a takeover rumour to cheer. Barclays soared 72p to 1,887p after cutting 6,000 jobs. Analysts counted the cost savings and upgraded.

If Lloyds does not capture Legal & General, the market is banking on an offer for the other insurer Norwich Union, 5.25p better at 439.5p.

All this takeover excitement propelled the FTSE 100 to 6,368.2 - a 101.5 rise on the day.

For once Wall Street was not a major influence. A batch of weaker-than- expected domestic retail sales figures was the major sentiment-booster as the chances of a rate cut increased. The smaller indices were not touched by the leaders' euphoria and traded sideways.

The FTSE 250 closed up 14.4 at 5,734.3, while the Small Cap squeezed 5.1 higher to 2,560.7.

Misys was touched by the Internet magic. The computer high-flyer soared 75.5p to 571p after striking an alliance with a US healthcare group to provide on-line services to American doctors.

The great Internet hope Dixons was hacked by profit-takers and shed 37p to 1,165p.

Vodafone led the telecoms' charge, rising 71p to 1,293p, on a double whammy of good news. First, the mobile phone group, confirmed that it would consider a stock split after its mega-merger with US rival Airtouch. There were also some rumours that Vodafone is ready to sell its 17.5 per cent stake in the German telecom group E-Plus for around pounds 2bn.

BT, 40p higher at 1,136p, continued to bask in Wednesday's results' glory while Securicor locked in a 38p rise to 588.5p with a little help from Goldman Sachs. The prospect of a lucrative sale of its Cellnet stake to BT also helped.

Colt Telecom kept up with its rivals, shooting 108p up to 1,437p.

Bass wrong-footed many an expert with better-than-expected first-half results. The shares poured 44p higher at 943.5p as brokers rushed to raise their full-year figures by some pounds 16m to around pounds 680m. The company admitted it was keeping an eye on the sale of the Allied Domecq's pubs to Whitbread, down 9.5p to 1,023.5p.

The sector's imminent shake-up pushed Greenalls 18p higher to 359.5p on hopes of a takeover by the big boys.

Cadbury Schweppes was sweetened by a CSFB upgrade and rose 37.5p to 877.5p. The broker believes the stock is worth 960p while the market is convinced that monopoly clearance for the Coca-Cola deal is coming.

The airport group BAA firmed 10p to 659p as the broker Kyte Securities went positive, while its smaller rival TBI flew 2.25p higher to 99p after the pounds 90m buy of a US rival. The deal will give George Soros a stake in the group.

Weak retail sales left the stores on the reject shelf. GUS shed 22p to 698p, while Tesco lost 2.5p to 179.5p and Sainsbury gave up 4.25p to 406.25p.

Safeway collapsed 2.25p to 265.25p after ABN Amro slashed its forecasts, triggering wild rumours of a profit warning. The Mothercare group Storehouse plunged 15p to 116.5p after some poor results.

British Airways crashed 4.5p to 424p as the house broker Merrill Lynch cut its numbers ahead of next week's results. Passenger revenues might be on the slide. Sellers picked on Granada, 27p lower at 1,239p, after reports that the competition authorities could look at motorway service stations.

The software group FI headed the midcappers' list after the pounds 106m purchase of IT consultant OSI. The stock rose 40p to 327.5p as the market braced for further buys.

The software minnow Alphameric was 4.25p higher to a record 80.75p. A big supply contract with some bookmarker firms is believed to be close.

The housebuilder Bryant delivered a bullish update and cemented a 11p rise to 143p. Rival Taylor Woodrow benefited from Bryant's optimism and ended 6.5p up at 186.5p.

Rumours of an overseas bid delivered a 13p advance to 177p for the courier group NFC.

Skyepharma surged 4p to 55.5p on rumoured US buying and vague takeover talk. The troubled recruitment firm Corporate Services slipped 1p to 77p ahead of much-awaited results.

The videogame group Electronic Boutique was beamed 0.25p up to an all- time high of 110.25p. It should soon enter the midcap after the tie-up with rival Game and tracker funds are buying. The photocopier company Danka flashed 7.5p up to 88p after selling $300m worth of businesses. More disposals are likely.

SEAQ VOLUME: 1.19BN

SEAQ TRADES: N/A

GILTS INDEX: 107.87 -0.12

PARK GROUP, the credit company, rose nearly 17 per cent yesterday amid renewed talk that a predator is having a look.

Shares in the group, which started out as a supplier of hampers, shot up 4.5p to 31.5p in sizeable turnover of 2.5m.

The group, majority-controlled by Peter Johnson, the owner of Everton football club, could be the target of a 40 to 45p-per-share bid. The offer would value the struggling group at up to pounds 73m.

CHEROKEE LEISURE, the Ofex-traded operator of table-dancing clubs, is in talks to buy Fit Stop, a health club chain founded by the star athlete Sally Gunnell.

Shares in Fit Stop, also listed on Ofex, were suspended yesterday at 17.5p, valuing the group at pounds 1.8m. The company, which specialises in fitness for sedentary people, owns a club in Sutton, Surrey, and claims to have over 1,000 members. Ms Gunnell resigned from the board earlier this month.