Market Report: Takeover chatter helps FKI engineer a rise

The FKI-Melrose saga kept speculators occupied yesterday. The investment group Melrose was granted access to the engineering company's books at the beginning of March. Last week, market chatter suggested the due diligence was almost complete, and that Melrose had secured funding for a formal bid. Yesterday, fresh speculation suggested that, while Melrose was still on track to make an offer, its efforts may be scuppered by a rival bidder.

While some cast Blackstone as the spoiler, it is understood the American private equity firm is not about to enter the fray any time soon.

"This is usual – I'm sure we'll hear new gossip every day until Melrose makes an offer or decides to walk away from it all," said one trader, adding: "If the current talk is correct, I guess they will make an offer. Let's wait for some official news."

The talk kept FKI's shares firm, up 0.75p at 69.75p. Melrose lost 1p to 144p.

Elsewhere, negative broker sentiment hurt Vodafone. Morgan Stanley revised its rating on the stock to "underweight" from "overweight", cutting its target price to 170p from 215p. "We double-downgrade Vodafone ... as it is one of the most exposed to the European Commission's likely decision to bring forward by June a recommendation to aggressively lower mobile termination rates to cost, and level the playing field for challenger operators," the broker said, sending Vodafone's shares down 6.1p to 150.9p. The company ended the day at fourth place on the FTSE 100 loser board.

ITV's stock slumped to the bottom of the FTSE 100, down 6.77 per cent or 4.6p to 63.3p, after being downgraded to "sell" from "neutral" at UBS. Citing a decline in the UK advertising market, UBS also cut its target price for the broadcaster's stock, to 60p from 70p.

Overall, the FTSE 100 was up 9.2, or 0.2 per cent, to 5,702.1. The FTSE 250 added 51.9 points, or 0.5 per cent, to 10,013.2.

Financial stocks were strong on the London benchmark, drawing investor goodwill after a period of turmoil in earlier weeks. HBOS was the strongest among the banks, gaining 20p to 560p and claiming second place on the leader board. The life insurer Friends Provident was up at third place on the leader board, adding 3.5p to 123.6p after rejecting a bid from JC Flowers, the American private equity group.

The mining sector, which ended the week with a flourish on Friday, also lifted the index. Stocks climbed on the back of strong commodities prices, taking Antofagasta up by 25.5p to 701p, to first place on the FTSE 100 leader board. Kazakhmys, lodged at fifth place on the leader board, was up 40p to 1,597p.

Good news was also forthcoming from the United States, where Wall Street registered early gains. Shares were lifted by the Chicago Purchasing Managers index, an important indicator of US business activity, which showed a reading of 48.2 for March from 44.5 for February, which was above market expectations.

The property developer Hammerson claimed fourth place on the FTSE 100 leader board. The company, which counts the Brent Cross shopping centre in London among its most valuable investments, was up 30p to 1,114p after late rumours suggested someone had picked up a large stake in the business. The talk bore no clues about the identity of the investor, nor was there any indication about the size of the stake.

Weak sentiment hit Tesco. The supermarket giant has temporarily halted new Fresh & Easy store openings in the United States.

On the FTSE 250, Dairy Crest slumped after being downgraded to "add" from "buy" at Dresdner Kleinwort. The broker also revised its target price to 575p from 710p, and said, despite news of strength in the company's foods business, its recent trading update was overshadowed by higher tax guidance. Dresdner was also wary of rising input costs. "Like other UK food producers, Dairy Crest is suffering from input cost pressures including [the higher price of] resin, diesel, vegetable oils and energy," the broker said. Dairy Crest lost 9.75p to 469p.

The discount airline Easyjet was lifted by two broker recommendations. In a new airlines review, Goldman Sachs retained its "buy" rating, while Credit Suisse, initiating coverage on the shares, set an "outperform" rating. "Easyjet is well positioned to exploit the significant growth opportunities in the European air travel market," said Credit Suisse. "It has a well-balanced business model that is able to compete effectively with network airlines, tour operators and other low-cost carriers, and to do so at both primary and secondary airports." Easyjet rose 10p to 371.25p.

Finally, Panceltica became the biggest company to list on AIM this year. The Qatar-based group of construction companies raised $115m (£58m) in pre-IPO funds. Two founding directors sold 10,000,000 ordinary shares through a secondary placing at 100p. Panceltica rose 13.5p to 113.5p.