Takeover fever powers Footsie to fresh record

Takeover fever gripped the London stock market again yesterday, powering share prices to record levels with the FT-SE 100 index climbing 36.4 points to 3,857.1. British Gas registered the biggest advance among the leading shares on rumours that Shell, the Anglo Dutch oil giant, might launch a takeover bid.

City sources also said that George Soros, the international speculator, bought shares in British Gas three weeks ago but that news of his investment has only just emerged.

Shares in British Gas, which is undergoing massive restructuring, jumped 10p to 250.5p - boosting its stock market value by almost pounds 440m to pounds 11bn. Neither Shell nor British Gas would comment on the rumour. BP, also viewed as a potential predator, refused to comment.

There were strong rumours that bids might also be launched for Thorn EMI, the music and electronics rentals group, and for the Wm Morrison supermarket chain. Thorn is valued at pounds 7.8bn with its shares jumping 33p to pounds 18.13p, and Wm Morrison is worth pounds 1.26m with its shares rising 8p to 171p.

The takeover fever in the market comes on top of new optimism about the economy. Bob Semple, equity strategist at NatWest Markets, said: "This is what happens when the good news starts to flow."

The market will have further opportunities to react to signs of buoyancy with the quarterly survey of manufacturers from the Confederation of British Industry, due on Tuesday, and official retail sales figures on Thursday.

There were more straws in the wind yesterday pointing to the gathering pace of growth. Consumer confidence edged up in April due to a decline in pessimism about the state of the economy. According to the monthly GFK survey carried out for the European Commission, fewer people on balance think the economy is weakening.

There was little change in households' assessment of their own financial situation compared with last month.

Another signal was the weekly sales report from department store and supermarket group John Lewis. Sales were up 20.9 per cent in the latest week, a remarkable jump though inflated by this year's early Easter. Sales of furnishings were particularly strong.

The flow of good news has begun to make an impression on City economists. According to the Treasury's latest round-up, forecasters have started to revise up their predictions for GDP growth this year. The average of the new forecasts this month is 2.4 per cent, against an average 2.3 per cent in March.

Richard Davidson, a strategist at Morgan Stanley, said: "Estimates of earnings growth will start to go up. The economic gloom has been overdone. The UK is in a very strong underlying position."

Along with potential bid candidates, consumer and cyclical stocks were strong yesterday. Pharmaceuticals stocks rose thanks to a jump in the shares of drug manufacturers on Wall Street.

The surge in British Gas's share price comes as the company awaits a decision by the regulator, Ofgas, on its future price controls. Clare Spottiswoode, director general of Ofgas, is due within weeks to deliver her initial views on future pricing for millions of domestic customers.

Ms Spottiswoode is also preparing a far-reaching document that will determine what British Gas can charge for use of its pipeline arm by rival suppliers. These charges will in effect dictate British Gas's capacity for delivering dividends to shareholders in the year to come.

If it fails to agree on pricing controls the issue will be referred to the Monopolies and Mergers Commission. British Gas has been dogged by controversy over directors' pay and falling service standards.

Market report, page 20