The London market fell over the week as blue-chip losses offset gains driven by a continuing bubble of takeover activity and rumours. The FTSE 100 index fell 0.4 per cent to 4,803.3 as market heavyweights struggled to make progress in the face of steady falls on Wall Street and mixed economic data.

However, the small and mid-cap stocks had a much better week. The FTSE 250 advanced 0.6 per cent while the FTSE Small Cap gained 1.5 per cent.

The outperformance was supported by takeover speculation as brokers drew up lists of potential bid candidates and rumours swirled around trading rooms.

Every day seemed to present a new takeover rumour about a host of companies,including Pilkington, Business Post Group, ITV, HHG and Oxford Biomedica. There were vague murmurings about an even greater list of companies.

Mersey Docks and Harbour was a focus for attention after it confirmed on Monday talks over a potential £722m offer from a private equity house widely believed to be CVC. It continued to firm over the week that there might be a counterbid to the potential 925p-a-share offer. These intensified yesterday when the stock rose 5.8 per cent to £10.05 as a leading shareholder raised its stake.

Peel Holdings is understood to have Schroders’ 13 per cent stake in the port operator, taking its holding to 24.9 per cent. Traders speculated Mersey Docks might receive a counter-offer above £10 per share although this was downplayed by some analysts.

This helped Forth Ports rise 4.6 per cent over the week to £13.98.

Housebuilders featured heavily in the lists of potential bid candidates. The sector gained 2.8 per cent over the week while the broader building and construction sector firmed 3.3 per cent.

Pilkington, one of the longest-standing takeover candidates in the market, on Wednesday saw particularly heavy trading amid fresh speculation. The glassmaker ended the week 3 per cent higher at 120.5p.

The rumours turned out to be true at Oxford Biomedica, which on Wednesday confirmed it was in bid talks. The stock gained 31.9 per cent to 22.75p.

However, bid activity was offset by mixed economic data. Sentiment was hit on Tuesday by the release of data showing inflation rose by a higher-than-forecast 0.5 per cent in December. This seemed to damp hopes of an early end to the current upward cycle in interest rate rises.

The inflation data though were countered by poor retail sales news for the Christmas season. UK retail sales volumes declined by 1 per cent in December, the weakest December out-turn since 1981.

This confirmed the evidence emerging from a slew of poor trading updates from retailers in the past two weeks.

Even Tesco, which posted yet another resounding trading update on Tuesday showing further gains against competitors, suffered from profit-taking, falling 1.4 per cent over the week to 312.25p.

Elsewhere, the strongest gainer in the FTSE 100 was Wolseley, the plumbing equipment supplier that reported strong trading results on Monday. The stock gained 8.6 per cent over the week to £10.73, helped by several earnings upgrades.

British Energy relisted after a debt-for-equity restructuring. The nuclear power group resumed trading at 286p but sunk to a low of 247p in volatile trading. It ended the week at 267.5p, giving it a market capitalisation of about £1.47bn.

In London on Friday, the FTSE 100 edged up just 2.5 points to 4,803.3 after rallying from early losses, while the FTSE 250 slipped fractionally to 7,090.6. Trading volumes were moderate, with 3.7bn shares changing hands.

BSkyB led the FTSE 100 with a gain of 2.2 per cent to 552.5p on hopes the satellite broadcaster would announce better-than-expected subscriber growth in its trading update next week. Morgan Stanley assumed coverage of BSkyB with an “equal weight” recommendation and a target price of 610p.

The cancellation of the ill-fated round the world cruise by the Aurora, nicknamed “the boomerang cruise”, dragged Carnival 0.1 per cent lower to £32.25. The world’s biggest cruise operator said the cancellation would reduce full-year earnings by 5 cents per share.

HHG rose 0.4 per cent to 59p on bid speculation. The financial services group, demerged from Australian insurer AMP, has been seen widely as a bid candidate following the sale of its closed book of life insurance funds for £1bn in mid-September. This has allowed it to focus on fund management under the Henderson Global Investors brand.

Rival fund manager F&C Asset Management, the combined Isis and F&C groups, fell 1.8 per cent to 251.5p as speculation in the City continued over difficulties in bedding down the merger and amid high-profile fund manager departures. Morgan Stanley issued an “underweight” rating on the stock this week with a price target of 225p.

Evolution Group dropped 0.5 per cent to 156p as analysts maintained a neutral rating on the investment bank in spite of strong hints yesterday in a trading statement that it was planning to return cash to shareholders. Evolution also said it was on track to meet market expectations.

Capital Radio fell 0.6 per cent to 432.5p after Panmure Gordon downgraded its recommendation to “hold” from “buy” as the share price had reached Panmure’s price target after its recent bounce. “The trading update next week is likely to be cautious on the short-term outlook for radio advertising,” said Jesper Jensen of Panmure.

Amlin rose 4.8 per cent to 151.5p as the insurance team at Numis Securities said the Lloyd’s insurer was good value with upgrades possible to both earnings and dividends. Elsewhere in the sector, Hiscox rose 2.9 per cent to 180p.

Caspian Holdings rose 25 per cent to 37p after the oil and gas exploration and development company, which focuses on Kazakhstan and the Caspian sea, said it had drilled successfully and brought into production the first three wells in a seven-well programme.

Asos rose 0.6 per cent to 78p after the online fashion retailer reported stunning growth over Christmas with a 70 per cent increase in like-for-like sales over the three months to December 31. The stock has risen 1005 per cent over the past 12 months.

Medical Solutions said yesterday talks had terminated with the unlisted US company that was proposing an all-share offer. On Tuesday, Nomura raised £6.4m through a successful placing for Medical House, which specialises in pathology services and technology. The shares were unchanged yesterday at 7.1p.

BioFocus shares gained 2.4 per cent to 102.5p after the pharmaceutical company said it had entered into a significant new cancer drug development collaboration with the Memorial Sloan-Kettering Cancer Center.

Gresham Computing advanced 4.4 per cent to 297.5p after the banking software specialist said it expected to report a “considerably improved” operating performance in the second half as better trading seen in the first six months of the year continued.

Scotty Group fell 27.6 per cent to 2.6p after the video communications group warned results for the year to July 31 would be materially below current market expectations, due in part to the continuing weakness of the US dollar.

SPG Media Group dropped 33.3 per cent to 12p after a profit warning.

InTechnology fell 22.7 per cent to 59.5p after a profit warning from the Aim-listed data storage and security specialist which said full-year operating profits would be below current market expecttions if increased margin pressure continued.

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