BP showed its biggest gain in six months as the FTSE 100 began the year with a surge.
Shares in BP jumped 5.9 per cent to 493p following a revival of talk that Royal Dutch Shell may still be interested in a merger if other predators emerge.
Shell was widely rumoured to have weighed up the option of buying BP during the Gulf of Mexico oil spill last year and dealers said there was little new in the speculation.
Instead, they highlighted that BP’s US-traded shares had risen by 4.3 per cent compared with the London closing price on December 31.
That came after oil hit its highest level in 27 months and BP lawyer Ken Feinberg said economic compensation claims from the Macondo spill should not exceed $10bn.
An upgrade from Raymond James also helped the stock with the US broker moving to “outperform” on valuation grounds.
BP’s underperformance against peers last year cut its valuation by $63bn. That exceeds the full potential cost of the disaster and ignores the chance of positives such as a settlement with the Justice Department, it said.
The wider market told a similar story with the FTSE 100 playing catch-up with world markets to hit its highest closing level since June 2008.
The index rose by 113.93 points, or 1.9 per cent, to 6,013.87 as banks pared some of their recent losses.
Barclays was up 4.2 per cent to 272¾p and Lloyds Banking Group added 3.3 per cent to 67¾p.
Royal Bank of Scotland rose 4.1 per cent to 40¾p after Exane BNP Paribas turned positive with a 50p price target.
The sell-off that followed Lloyds’ warning last month implied that a fifth of RBS’s Irish residential mortgage lending book would be impaired, said analyst Ian Gordon. “Our view remains that 50p will prove to be an effective ceiling for the share price in 2011,” he said. “However, at the current entry level, induced by crisis in Ireland, we see an attractive risk-reward.” An upgrade to “buy” from Deutsche Bank helped lift Carnival by 3.8 per cent to £30.96.
Deutsche cited “an undemanding rating relative to its history and our equity strategists’ view that the US economy (half of Carnival’s revenues) is one of the most likely major sources of positive surprise in 2011 for equity investors”.
Cairn Energy was up 2.8 per cent to 431½p after it secured two rigs for its 2011 Greenland drilling programme.
Cairn also secured a $900m revolving debt facility as it waited for Vedanta Resources to complete the purchase of its Indian arm. Vedanta drifted 1.3 per cent to £24.85 as investors read Cairn’s news as an indication that the India deal could be delayed further.
Randgold Resourceswas down 1.9 per cent to £51.75 as the equity rally put pressure on the bullion price, which dropped by about 2 per cent.Fresnillo was active after a US investment blog helped revive speculation that the Mexican silver miner could be a target for Carlos Slim. The stock traded as high as £17.68, then drifted back to close at £16.82, up 0.8 per cent, as analysts reasoned that Penoles, Fresnillo’s majority shareholder, had shown no desire to sell. Fresnillo had outlined aggressive expansion plans in late December.
Among the fallers, Compass drifted by 2.2 per cent to 568p amid talk that Nomura was selling a block of 14m shares, or about 0.6 per cent of the total, on behalf of a client.
Mid-cap retailers saw demand ahead of trading statement season, which begins on Wednesday with Next, up 2 per cent to £20.15.Sports Direct, a popular tip for 2011 in the Sunday papers, was up 3.6 per cent to 166p and Home Retail Group firmed 4 per cent to 196p.
A short squeeze helped Ocado close above its flotation price for the first time since it joined the market last July with the delivery group up 10.3 per cent to 196¾p. About 15 per cent of Ocado’s available shares were out on loan, which would take more than 100 days to cover on average volume, according to Data Explorers.
Rightmoverose 4.2 per cent to 812p after Collins Stewart upgraded to “buy” ahead of results.