Market Report: Shire in rude health as takeover chat re-emerges

Market gossips turned once again to Shire last night as renewed speculation, plus raised expectations ahead of its forthcoming results, helped to galvanise the drug maker.

Repeatedly touted as a possible takeover target, yesterday the bid spotlight was back on the blue-chip group as talk spread suggesting it could be in line for an approach worth as much as 2,600p a share. The vague speculation mentioned both AstraZeneca, which edged up 18.5p to 2,971p, and the Israeli group Teva Pharmaceuticals as potential bidders.

Extra impetus to the chitter-chatter was supplied by UBS keeping Shire on its merger-and-acquisition "watch list". Meanwhile, although he said he did not think a tie-up between the group and AstraZeneca was "a viable option", Guardian Stockbrokers' Atif Latif added that "given the tough times ahead for the pharmaceutical sector... there is an outside chance it could happen".

However, traders were playing down the tale, while the market did not react with overflowing enthusiasm, and Shire – despite touching 1,872p during the session – eventually closed at 1,848p, a rise of 15p.

It was also given support by Morgan Stanley, which increased its price target to 2,295p and reiterated its "overweight" stance in the run-up to Shire's first-quarter results next week, saying it believed current consensus estimates were at least 5 per cent lower than they should be.

Overall the FTSE 100 ticked up 26.79 points to 5,896.87, but the bounce was nowhere near enough to regain Monday's sell-off of 125.93 points, which came after Standard & Poor's reduced its outlook on US government debt to "negative".

Diamonds may be a girl's best friend, but investors in Anglo American were told they could be theirs as well after Deutsche Bank predicted De Beers' contribution to the group would grow rapidly. The miner holds a 45 per cent stake in the diamond giant, and the broker's analysts said that – after having weighed on its share price for a number of years – its exposure to the precious stone "is set to become a positive differentiator".

Reiterating Anglo's "buy" rating, they predicted that, with an increase in demand for diamonds, De Beers' contribution to its earnings before interest and tax will grow from 5 per cent to 13 per cent by 2015. It left the miner in sparkling form, climbing 70p to 3,053p after a run that has seen it drop nearly 9 per cent in the past five sessions.

There was some rare good news for the retailers as Citi said it believed consumer confidence in the UK was "close to the trough". Citing "an acceleration in employment, modest wage inflation and housing market stability", the broker changed its stance on the sector to "overweight", and said it expected companies to start reporting positive like-for-like figures next year.

It was particularly positive on the spending of the over-65s, claiming the demographic was seeing a strong growth in employment, and said Marks & Spencer would benefit as a result. The high-street institution, which jumped up 5.7p to 376.5p, had its rating changed to "buy", with the broker's analysts saying that older consumers would also be helped by any future increase in interest rates because they usually have less debt.

The positive comments on its sector failed to keep Tesco out of the red, however, as the supermarket shifted back 6.45p to 393.55p. The group's full-year figures managed to beat expectations with its underlying profit, but its performance in both the UK and US disappointed.

Burberry's update was greeted much more warmly, and the luxury group was the blue-chip index's top riser after being lifted 69p to 1,215p as it said its full-year figures would come in near the top of expectations. It was also helped by its French peer LVMH, whose sales soared up 17 per cent over the first three months of the year.

the ftse 250 was headed up by AZ Electronic Materials, with the speciality chemicals group advancing 15.5p to 264p. As well as the presence of vague takeover speculation, it was given a boost by UBS, which upgraded its recommendation to "buy", saying that despite concerns over the effect of the recent tragedy in Japan, it "has largely been able to mitigate the impact from the earthquake on its own production ability".

Hunting spurted up 27p to 812.5p, assisted on the read-across from its US peer Halliburton, which announced on Monday its revenues for the first quarter had hit a new high. Evolution Securities said the oil services giant's comments were particularly positive for Hunting given its exposure to North America, and raised the group's price target to 880p.

Down on the Alternative Investment Market, Travelzest was enjoying its day in the sun as the tour operator confirmed it was in discussions over a potential takeover, and despite warning that the talks were at a "very early stage", the group surged forward 2.25p to 16.5p.