Tullow Oil missed out as the London market recovered a large chunk of Monday’s losses.

As the FTSE 100 rallied 1.7 per cent, shares in the exploration and production company fell 5.5 per cent to 597½p after Dresdner Kleinwort advised clients to “sell”.

“Tullow has been among the best performing E&Ps during 2007 following successful exploration in both Uganda and Ghana,” said analyst William Arnstein.

“However, we believe that the shares have appreciated too far and that the future success implied in the price is far from guaranteed, let alone on the same scale,” he said.

In the wider market, traders were left bemused and exhausted after a day of extreme volatility.

London opened higher, rebounding from three days of weakness, but was soon in negative territory amid rumours of fresh writedowns in the banking sector. However, the market then turned around, rising 1.5 per cent during in the afternoon as Wall Street opened higher.

By the close, the FTSE 100 was up 105.7 points, or 1.7 per cent, at 6,226.5 with dealers unable to come up with anything better than bargain hunting and rumours of an emergency rate cut from the Federal Reserve to explain the recovery from Monday’s losses.

Lower down the market, the FTSE 250 advanced 95.4 points, or 0.9 per cent, to 10,499.9.

Icap, the inter-dealer broker, led the market higher. Its shares jumped 12.9 per cent to 645p after interim results exceeded expectations and the company upgraded guidance for the full year.

The stock was also helped by takeover speculation, with the CME Group, the world’s biggest derivatives exchange, the name in the frame.

Property stocks were also in demand as they bounced back from Monday’s sharp losses. Land Securities advanced 7.3 per cent to £14.77, while British Land moved up 6.5 per cent to 873½p.

On a more speculative tack, Rio Tinto added 2.2 per cent to £51.63 on rumours of a £65-a-share break-up bid led by CVRD of Brazil.

In the banking sector, Barclays moved up 5.1 per cent to 516½p, while Royal Bank of Scotland improved 2.1 per cent to 412½p.

Reuters, the news and financial information group, underperformed, however, falling 1.7 per cent to 600p. Traders said hedge funds were being forced to sell out of several “deal” names. Reuters is seeking to merge with Thomson, its Canadian rival.

Scottish & Newcastle, the brewer which has rejected a 750p-a-share offer from Carlsberg and Heineken, eased 1.3 per cent to 729p after a weak third-quarter trading update.

Traders said the share price fall also reflected S&N’s pledge to fight Carlsberg for control of Baltic Beverage Holdings, its east European joint venture, in the courts.

Merrill Lynch said: “If S&N does win the arbitration, it mentioned that it is willing to introduce a minority partner. This will clearly be an opportunity for SABMiller. But this will remove the bid premium from the S&N share price, with potential significant downside for shareholders.”

Paragon Group, the specialist mortgage lender, provided the main talking point in the FTSE 250. Paragon shares dropped 39 per cent to 125p after saying it was facing problems raising new funds and it might need to raise £280m from its shareholders.

Software developer Misys was marked 3.4 per cent lower at 205p after Merrill Lynch downgraded from “buy” to “neutral”.

“Misys is highly exposed to the two main risk factors affecting the market [currency and financial services exposure] but trades on a significantly higher multiple than its less risky peers,” it said.

Gyrus, the medical devices company, firmed 0.3p to 609p. Japan’s Olympus Corporation, which announced a 630p-a-share recommended offer on Monday, revealed on Tuesday that it had raided the market and bought 20 per cent of Gyrus.

Shaftesbury, the property company focused on London’s West End, rose 4 per cent to 560½p on stake-building rumours. Crédit Agricole declared a 5 per cent holding on Tuesday. Traders believe the stake could be a hedge for a client derivative position.

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