A possible bid for O2 had the London market talking on Thursday in a session otherwise marked by late declines triggered by another rise in oil prices.

More than 121m shares in the mobile phone group changed hands on renewed speculation it was ripe for a bid approach - more than double its average daily trade of 55m. In a weaker market, O2 shares ended 1.5 per cent higher at 119¼p.

The speculation was helped by a research note by Guy Peddy, analyst at Deutsche Bank, who suggested O2 would make a good strategic fit for Deutsche Telekom.

Mr Peddy said a link up presented “a rare example in Europe offering intra-country consolidation”. Merrill Lynch said earlier this week that O2, which rejected an approach from KPN of the Netherlands last year, “remained a potential acquisition target for either private equity or the cash rich European telcos”.

As Deutsche Telekom operates as T-Mobile in the UK, any deal would likely face competition issues. Speculation over potential bidder widened to include Telefónica of Spain.

However, one unnamed analyst said it made little sense for Deutsche Telekom to move for O2, given both operated in the same market. “If Deutsche Telekom was going to buy telecom assets then surely it would look anywhere but Germany and the UK,” he said.

Vague bid talk also boosted SSL, the healthcare products group that makes Durex condoms and Dr Scholl’s sandals, up 1.6 per cent to 302.75p.

After spending most of yesterday in positive territory, a late slump caused by a fall on Wall Street and fears over oil prices saw the FTSE 100 close 0.1 per cent lower at 4,894.4. The mid-cap FTSE 250 had a better day, ending 0.7 per cent at 7,103.5. Trading volumes were heavy at 3.8bn.

Over the quarter, the FTSE 100 gained 1.7 per cent while the mid-caps rose 2.8 per cent.

Shire Pharmaceuticals led the FTSE 100, up 7.6 per cent to 604.5p after the drug group told a conference in the US that sales of its kidney drug Fosrenol had secured 15 per cent of new US prescriptions after only nine weeks on the market.

Shire also said the suspension by Canada of Adderall XR, its hyperactivity drug, had not affected US sales. The February suspension knocked 10 per cent off the shares.

“[The company] was far more positive on Fosrenol than people had expected,” said Catherine Isted at Code Securities, which reiterating a ‘buy’ rating with a 700p price target.

Antofagasta moved 1.8 per cent higher to £12.76 after Morgan Stanley increased its 2006 earnings estimate by 12 per cent and revised its price target from 950p to £12.50. Elsewhere in the sector, Rio Tinto rose 1.2 per cent to £17.11 while Xstrata added 2.9 per cent at £10.10.

Moving in the opposite direction was Compass, the catering group, down 5 per cent to 241.5p, after it noted a move away from military catering contracts in the Middle East to less lucrative peacekeeping operations. Compass, which suffered a sharp 25 per cent share slide after it warned on profits in September, forecast sales growth of six per cent this year. Lex live on Compass

MyTravel was the biggest mid-cap riser, up 6.4 per cent to 5.85p. The tour operator, which in December completed a £800m debt-for-equity restructuring , said it had made “significant progress” in restoring its business, noting encouraging summer bookings. See more on My Travel

Dana Petroleum gained 2 per cent higher to 546.5p after the oil and gas explorer reported solid full-year figures, boosted by a near-record oil price and an increase in production. Dana also announced a fresh oil discovery close to the Hudson field in the Northern North Sea.

Dana will flesh out details of its exploration programme at an analysts meeting later this month. However, Brendan Wilders, at Oriel Securities, said Dana shares, which have more than doubled in value over 12 months, were already well up with events, and held his “sell” recommendation.

Smith & Nephew, the healthcare equipment company, fell 4.7 per cent to 497.5p after it said it had been subpoenaed by the attorney-general of New Jersey. The move is part of an investigation into links between joint implant makers and US surgeons.

“It’s unclear what the likely next steps are and whether allegations will be brought against the company,” said Numis. See more on Smith & Nephew

FKI slid 5.8 per cent to 106.25p after the engineering group issued a mixed trading statement and said the weak dollar would knock £3m from its profits. Dresdner Kleinwort Wasserstein, house broker, cut its full-year pre-tax profit forecasts for the company by 8 per cent to £67.5m.

Admiral, the motor insurer, dipped 0.3 per cent to 349p after Citigroup placed 15m shares, a 5.8 per cent stake held by Barclays Private Equity.

Viridian Group rose 4.3 per cent to 758p after the former Northern Ireland electricity provider sold Sx3, its software services arm, for £155m to Northgate Information Solutions, up 1.9 per cent at 67.75p.

Jonathan Imiah of Altium Securities said: “Northgate has a history of creating significant shareholder value from its acquisitions and we are confident that it will be able to repeat that feat with Sx3.”

The disposal is expected to result in a gain of around £100m for Viridian which is planning to return 10 per cent of its market value (around £97m) to shareholders.

Dresdner Kleinwort Wasserstein welcomed the deal which is expected to enhance earnings by around 3 per cent and uppgraded its recomendation for Viridian from “reduce” to “hold” with a revised price target of 745p from 655p previously.

Wolverhampton & Dudley Breweries, the Midlands-based pub operator and beer producer, gained 4 per cent to £11.25 after it highlighted an increase in sales in the 24 weeks to March 19.

On the Aim market, thirteen companies made their debut, the second-highest number in the junior market’s 10-year history. This completed a record week and and a record month for new listings on Aim.

The largest newcomer yesterday was Proximagen, a drug developer spun off from King’s College London, which raised £13.5m and closed at 154p, a 4 per cent premium to the offer price.

Vividas, a video technology company, raised £5.5m to develop and market its high quality video streaming tool and closed at 88.5p, a 5.4 per cent premium to the offer price.

Game Group jumped 22.9 per cent to 94p after the computer games retailer said it was in discussions which may or may not lead to a takeover offer for the company. Many names were mentioned as potential buyers including Tesco, Dixons and HMV.

The two leading US games retailers, Electronics Boutique and Gamestop, are also known to have international aspirations. However, most of the speculation focused on a private equity buyer. Simon Davies of ABN Amro said private equity buyers would find Game attractive as its earnings were in a trough ahead of the launch in 2006 of the next cycle of games consoles - XBox2 and Playstation 3 - which are expected to be the next driver for profits.

Empire Interactive rose 12.3 per cent to 9⅛p after the publisher of computer games such as Starsky & Hutch and Big Mutha Truckers revealed a distribution deal with Konami, the Japanese games developer that produces Metal Gear Solid.

Islamic Bank of Britain’s recent spectacular run ended after the mortgage lender, which sells financial products designed to comply with the Muslim Sharia law that forbids interest payments, reported a loss of £3.1m for the five months to December 31. The shares, which had gained 220 per cent between the middle of March and Wednesday, fell 17.8 per cent to 67p.

Centurion Electronics fell 33.9 per cent to 40p after the in-car entertainment group said it would have to make a further £1m write-down and warned full-year profits would fall below current market expectations due to poor UK sales.

Crosby Capital, the Asia-focused investment bank and fund manager, rose 9.2 per cent to 35.5p after announcing it had bought warrants in IB Daiwa which should allow it to take control of the Tokyo-listed trading company.

Moneybox rose 7.9 per cent to 37.75p after the the cash machine operator said it had received preliminary takeover approaches. Rival operator Cardpoint firmed 2.9 per cent to 125p after a positive trading update.

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