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BAE Systems closed at its highest level since mid-May on rumours that the defence contractor could be a take­over target for Boeing.

Jim Albaugh, head of Boeing’s $31bn-a-year defence business, last week revealed that he was looking to buy in the UK to compensate for an expected slowdown in the US defence budget

With BAE set to dispose of its stake in Airbus, analysts said they would not be surprised if US rival Boeing had made an informal approach.

“Most UK companies have very high exposure to the US market,” said Clive Forestier-Walker of Numis Securities. “In effect, an acquisition is almost the same as buying a US company, with the additional benefit of a route to the export market, including Europe.”

BAE shares closed 1.3 per cent higher at 412¾p.

Elsewhere in the sector, Rolls-Royce rose 1.7 per cent to 473½p amid talk that General Dynamics might be interested in the aero engine maker because of its exposure to large defence projects such as the joint strike fighter and the DDX Destroyer.

In the wider market, the FTSE 100 bounced back from early weakness to close 0.8 points, or 0.01 per cent, higher at 6,073.5. The index was helped by a strong performance from telecoms stocks.

Vodafone was up 0.8 per cent to 130¼p, and BT Group added 1.5 per cent to 266¼p on rumours that the Blackstone private equity group is trying to orchestrate a merger with Deutsche Telecom.

Lower down the market, the FTSE 250 rose 2.6 points, or 0.03 per cent, to 10,247.1 – a record high.

A flurry of late buying left Cairn Energy, the oil explorer focused on India,
1.5 per cent higher at £18.88. The word among traders was that Cairn, which trades at a discount to net asset value, could be vulnerable to a bid, possibly from India’s state oil company, ONGC.

“Shareholders have been disenfranchised by the proposed Indian IPO and as a result could be responsive to an opportunistic bid,” said Al Stanton, analyst at Bridgewell Securities.

Whitbread, the budget hotel operator, was also in demand during the last 30 minutes of trading. Its shares closed 3 per cent higher at £13.39 on talk that it could return a further £300m to investors.

Whitbread has promised to update the market on what it plans to with the proceeds from the sale of its pub restaurants and Pizza Hut, with its half-year results due on October 24.

Elsewhere, Burberry, the luxury goods label, jumped 8.2 per cent to a record high of 552p following an upbeat trading statement and rumours of predatory interest from France’s PPR.

On a more fundamental tack, BG Groupimproved 1 per cent to 664½p after UBS upgraded to “buy” and set a 800p target price. The broker believes BG’s exploration portfolio is worth £4.8bn, or 142p a share.

Premier Oil rose 2.5 per cent to a record high of £12 on further bid rumours and a positive drilling report from Vietnam.

Brewer SABMillerrose to £10.35, up 2.2 per cent, as a hedge fund went round the market hoovering up stock ahead of today’s half-year trading update. Traders reckoned the fund was either closing a short position or betting today’s sales would exceed forecasts.

Experianclosed its first day of unconditional trading 0.8 per cent lower at 574p, valuing the credit checking company at just over £5bn.

Away from the blue chips, Autonomy, the data software specialist, was the FTSE 250’s top performer, rising 10.9 per cent to 516¾p after revealing that third quarter revenues would come in at the top end of expectations.

Elsewhere, there was another session of heavy trading in Northumbrian Water, off 2.7 per cent to 306¾p. More than 11m shares changed hands – six times the daily average – as bid rumours refused to
die down.

Weir Group, the Glasgow-based pumps and values manufacturer, was marked 3 per cent higher at 484p after US rival Flowserve reported record third quarter sales overnight.

Meanwhile, rumours of predatory interest from an investment bank helped Kensington the specialist mortgage lender, to advance 3.2 per cent to 933p.

On the downside, SSL International, the Scholl footcare group, faded 2 per cent to 326p after ABN Amro advised clients to “sell”. “We question whether SSL’s brands have the scale to attract larger bidders, especially in the absence of the Scholl US rights,” analyst Liz Hartley said.

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