ITV sparkles as takeover rumours circulate

More than twice the usual number of ITV shares changed hands during the day, amid talk that Time Warner, the biggest media company in the world, was backing a consortium to bid for the UK's premier commercial channel. Last week's regulatory settlement - when Ofcom agreed to slash the fees ITV pays to the Government for its licence to broadcast - has removed a big uncertainty preventing a bidder from making their approach, according to the theory.

Time Warner and Goldman Sachs are rumoured to have pledged their support to Apax Partners, the private equity group advised by Greg Dyke, the former director general of the BBC, which has wanted to bid for almost a year. The involvement of a trade bidder of the calibre of Time Warner might appease ITV pension fund trustees, who might otherwise try to stymie the deal on the grounds that the debt-burdened bid vehicle could collapse leaving pensioners stranded. Debt fears were reflected in the bond market, and the cost of insuring against a default by ITV bonds - judged more likely if it is sold to a debt-laden private equity vehicle - rose sharply.

In the equity market, traders were concerned with how much money shareholders might make out of a bid. The latest speculation pitches the Apax bid at 165p. Although ITV shares jumped 3.75p to 128.5p, that represents a significant distance from the supposed takeover price, reflecting a degree of caution regarding the stories and a degree of realism about the financing difficulties a bidding consortium has to overcome.

Only the mighty Vodafone (unchanged at 136.25p) was more heavily traded yesterday, as the FTSE 100 shot to another three-year high. The index, up 23.3 to 5,184.3, has risen for five days in a row. The heavyweight oil sector accounted for all of the move.

BP, the UK's largest company, was top of the performance table, up 23p to 617p, its best level since March 2002. It has a trading update due this morning which, given that oil prices touched $60 a barrel last week, is unlikely to be negative. BP is continuing to buy back shares, even in the run-up to its results, and there are hopes it will step up returns of cash to shareholders. Shell is in a similarly sweet spot, with its shares additionally buoyed by the technicalities of the merger between the English and Dutch halves of the company. Its shares were up 10.25p at 563.25p. BG Group rose 4p to a record 476.5p, and BHP Billiton, the natural resources giant which makes about one-third of its profits from oil and gas, jumped 15p to 737p.

Unusually, the mid-cap FTSE 250 was headed in the opposite direction to the FTSE 100, largely because of a profits warning from Travis Perkins, the building materials supplier which has just bought Wickes. Its shares were off 139p at 1,638p, and the company's downbeat comments triggered selling across the sector. Kingfisher, which has already warned of disappointing sales at B&Q, fell a further 4p to 246.25p. And there were falls for other suppliers to tradesmen, including Marshalls ,off 11.75p at 293p, and SIG, 18.5p lower at 626.5p.

Somerfield dipped 4p to 191.5p as the long-running takeover battle took another turn for the worse, as far as the supermarket's shareholders are concerned. Less than a week after one bidder pulled out, one of the two remaining consortia was in turmoil over the continued role of Baugur, the Icelandic retailer whose chief executive is facing fraud charges. No such worry at easyJet, though, where Icelanders are also on the march. Icelandair topped up its "strategic stake", up from 11 per cent to 11.5 per cent, helping the no-frills airlineup a penny to 259p.

Three directors weighed in to buy shares in Berkeley Scott, the recruitment firm whose shares have collapsed since their flotation by Evolution Securities last year. The directors, including the chairman, Jeremy Hamer, bought a total of 72,000 shares at between 34p and 37p, compared with the 71p placing price. The purchases had the effect of halting the decline, and Berkeley Scott shares were up 2p to 39.5p yesterday.

There was vague bid speculation at Empire Interactive. The publisher of cheap computer games was up 0.38p to 9p. It is not to be confused with Empire Online, the new internet poker marketing company, whose shares gave back 3.5p to close at 179.5p, compared with a float price of 175p last month. It has performed far less well than PartyGaming, whose shares were also off 3.5p yesterday, but at 141.5p are still 22 per cent above their placing price.