Bid rumours helped lift the FTSE 100 on Wednesday, with the index registering its first two-day gain in nearly three weeks.
J Sainsbury was the focus of attention amid a revival of hopes that Qatar Investment Authority might be keen on another approach.
Real estate investments by QIA’s investment arm, Sainsbury’s 26 per cent shareholder, have raised hopes it could revisit bid plans.
Sainsbury’s most recent property review valued the portfolio at £9.8bn compared with an enterprise value of about £8bn, traders noted.
Sterling’s weakness against the dollar since 2007, when QIA abandoned a 600p offer, could also make a deal more attractive, they added.
Shares in Sainsbury climbed 4.9 per cent to close at 344.3p.
“Rekindling failed deals is going to be a prominent feature of mergers and acquisitions this year,” UBS said.
The broker had Sainsbury shares on an “unfinished business” list along with International Power and National Express.
“We believe National Express-Stagecoach (due to consolidation in the sector) is the most likely to come back this year,” the broker said.
National Express ended up 1.2 per cent to 224p while International Power was 3.1 per cent higher at 310p as theories of an offer from GDF-Suez were given another airing.
Among the mid-caps, stake-building gossip helped Northumbrian Water edge up 2.7 per cent to 318¼p. The utility has been rumoured to be a target for the Abu Dhabi Investment Authority.
The wider market reversed losses in tandem with Wall Street, with the FTSE 100 ending higher by 49.82 points or 1 per cent at 5,014.82.
Banks gained as the first details of stress tests due to be introduced by the Committee of European Banking Supervisors were viewed as benign for the sector.
Lloyds gained 2.2 per cent to 58¼p and RBS was ahead 4.7 per cent to 42¾p.
Barclays climbed 6.2 per cent to 291½p amid suggestions it could be interested in bidding for SunTrust, the US retail bank.
The talk followed speculation earlier this week that Barclays might spin off its investment banking divisions and buy a US retail franchise to shift the operations across the Atlantic.
BP rallied for a third day, up 4.8 per cent to 362p, on hopes that buying by sovereign wealth funds could provide a backstop to potential liabilities from its Macondo oil spill in the Gulf of Mexico.
Exane BNP Paribas argued that, if BP could stop the well by early August and take on 65 per cent of the clean-up costs, shares could be worth around 550p.
Capping the well by late August and bearing 100 per cent of the costs and fines would still leave the stock worth 430p, suggesting the rewards outweigh risks, it told clients.
A relief rally carried BT 3.6 per cent higher to 135p after a European Commission green paper on pension fund reform contained no detail on solvency or longevity assumptions.
Compass rose 0.7 per cent to 526½p after rival Sodexo raised earnings guidance.
Among the mid-caps, Dana Petroleum fell 3 per cent to £14.09 on concerns KNOC, the South Korean oil company, might walk away rather than offer the £20 a share Dana’s management is rumoured to want.
However, Dana investors played down a report that the board had been sounding people out about a potential takeout price.
Recruitment agency SThree gained 3.6 per cent to 265p after an upbeat trading statement from smaller peer Robert Walters.
Aveva, the design software maker for the marine industry, added 1.2 per cent to £11.99 after a bid for Intergraph.
Hexagon of Sweden said it would pay $2.1bn for Intergraph, equivalent to about 10 times its operating profit.
Analysts said Aveva traded at a premium to this valuation and would have benefited more if Intergraph had fallen to private equity.
“Now with Intergraph getting fresh oomph from a new owner, arguably Aveva will find it harder to build out its US business,” Panmure Gordon said.
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