London boosted by M&A talk

The FTSE 100 pushed on towards a five-year high, buoyed by numerous takeover rumours and a strong performance from Vodafone.

Shares in the mobile phone company rose 2.6 per cent to 129¼p after Bernstein Research upgraded to “outperform” and set a 155p target price, citing Vodafone’s improving risk profile.

The FTSE 100 closed 41.8 points, 0.7 per cent, higher at 6,072.7, while the FTSE 250 rose 92.2 points, 0.9 per cent, to a record high of 10,244.5.

The mid-caps were boosted by gains for possible takeover target Northumbrian Water, up 8.2 per cent to 315¼p, and First Choice Holidays, which rose 5.5 per cent to 216¾p on rumours of a 230p-a-share bid approach.

Analysts said a bid for First Choice from Germany’s Tui was unlikely because of regulatory problems but reckoned cash-generative First Choice could appeal to a private equity group.

Man Group was the session’s top FTSE 100 performer, rising 8.2 per cent to a record high of 478p, as the Goldman Sachs bid rumour was dusted down and given another airing. Once again traders were sceptical, noting Man had purchased 235,000 shares for cancellation on Monday - something it would not be allowed to do if it had received a takeover approach.

All told it was a good day for asset managers. Schroders rose 4.2 per cent to £10.04½p, while Amvescap raced to its highest level since April 2004 as traders reacted to further evidence that the turnaround at the Anglo-US fund manager is gathering pace.

Late on Monday, Amvescap slipped out a statement that revealed funds under management had climbed from $428.9bn in August to $440bn last month.

Chris Smith, at Oriel Securities, said the September figure was $2bn ahead of his full-year estimate and noted that most of the growth had come from mainstream bond and equity funds rather than lower margin money market funds as had the case in the summer.

With Mr Smith setting a 625p target price, Amvescap closed 5.3 per cent higher at 629p. Based on last night’s closing price, Amvescap trades on around 2 per cent of funds under management, a discount to US peers like Janus which trade on 3 per cent.

Wolseley, the plumbing and building materials group, climbed 3.9 per cent to £12.11 after JP Morgan made a big call on US housebuilders - Wolseley’s biggest customers.

“Key fundamentals [for the sector] are either beginning to stabilize or are on the cusp of recovering,” the broker said in a note to clients. Wolseley draws around 60 per cent of its annual revenues from the US.

Pay-TV company BSkyB improved 0.3 per cent to 549p amid talk that a US mutual fund was on the prowl for a large chunk of stock.

On the downside, Shire fell 4.6 per cent to 961p as traders took the view that Monday’s 15 per cent gain on news of US regulatory approval for NRP104, its new hyperactivity drug, had been overdone.

Its seems much of Monday’s buying was an attempt to cover or hedge short positions in New River Pharmaceuticals, the US drug company developing NRP104 with Shire. According to Bloomberg, short interest in New River before Monday’s announcement was 6m shares out of a free float of 20m shares.

Oil exploration stocks were in demand despite a falling crude price.

Excited by rumours of stake building in Repsol of Spain and also talk of a bid for Premier Oil, up 4.5 per cent to a record high of £11.70, Dana Petroleum rose 6.4 per cent to 12.62p, Tullow Oil advanced 6.1 per cent to 391p and JKX Oil & Gas improved 6.1 per cent to 290p.