Arm Holdings was among the gainers on Tuesday as the London market rebounded strongly after two down sessions.

Shares in the chip designer rose 1.8 per cent to 243p, helped by a revival of speculation that it could be a takeover target.

One theory was that Arm could appeal to Apple. The iPod maker hired a banker from Goldman Sachs last year to work solely on mergers and acquisitions, leading some to believe it would become more acquisitive. Its purchase of PA Semi in 2008 also hinted at a change of strategy to bring chip design in-house.

But analysts said Apple was much more likely to pursue small deals for specific technologies than to take out an industry-standard supplier such as Arm. The UK group’s current valuation of £3.2bn, or 32 times prospective earnings, was another significant hurdle for prospective buyers, they said.

Separately, Barclays Capital strategists turned positive on European technology stocks and named Arm among its preferred picks. The move was “in order to gain exposure to an increase in global capital expenditure and the ever-strengthening UK and US consumer,” BarCap said.

Earnings news provided the main catalyst as the FTSE 100 closed up 1 per cent, rising 55.78 points to 5,783.69. SABMiller gained 4.5 per cent to £19.96 and AB Foods rose 5.9 per cent to £10.15 after posting profit that beat expectations.

Banks rose following Goldman Sachs’ results.

Royal Bank of Scotland gained 4.6 per cent to 52¾p and Lloyds Banking Group was up 2.8 per cent to 67¼p, while Barclays put on 0.6 per cent to 372¾p.

Jason Napier, analyst at Deutsche Bank, repeated “buy” advice on all three, saying: “Market fears around a multitude of risk factors appear to have abated, which may prove premature. But longer-term value is evident in the sector as the market moves to discount 2012 normalised earnings.”

Aviva, Monday’s sharpest blue-chip faller, bounced 2.4 per cent to 387p on news it was closing its final salary pension scheme. JPMorgan Cazenove said the move was worth 13p on Aviva shares.

Among utilities, Centrica took on 3 per cent to 307¼p. JPMorgan Cazenove kept an “overweight” rating after a reassuring meeting with the finance director of British Gas.

National Grid firmed 2.2 per cent to 663p after BarCap started coverage with a 750p target price. “Management’s strategy of moving its regulatory exposure to the state level in the US provides upside opportunities not yet appreciated by the market,” it said.

Tesco was the sharpest of only nine Footsie fallers, losing 1.5 per cent to 431p after its first-quarter sales missed consensus forecasts.

Engineers were the top performers in the mid-caps.

Charter International rallied 4.2 per cent to 803½p on “buy” advice from Citigroup. It argued that consensus forecasts looked too low after last week’s stronger-than-forecast numbers from SKF, the Swedish bearings manufacturer.

UBS was also positive on the UK engineers, saying restocking could drive a positive surprise in first-quarter growth rates. Its favoured picks included Spectris (up 1.1 per cent to 905p); Spirax-Sarco (1.1 per cent higher at £14.50); and Weir Group (up 0.8 per cent to 948½p).

Wellstream gained 5 per cent to 660p after UBS took the oil services stock off its “sell” list on valuation grounds. Addressing recent takeover speculation surrounding the company, UBS argued that Subsea 7 was the only peer with the means and operating synergies to buy Wellstream. But it said the chances of a bid were “remote”.

As part of the same research, the broker upgraded Wood Group to “buy”, lifting its shares by 4.8 per cent to 393¼p.

Drinks group Britvic gained 1.1 per cent to 478½p as bid gossip was recycled. Dealers also noted “buy” advice from Evolution Securities following an investor roadshow with the company last week.

Arriva edged 0.2 per cent higher to 762p on expectations that Deutsche Bahn would formalise its 775p a share offer for the transport group as early as Wednesday.

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