Market Report: A&L hit by talk of Crédit Agricole bid U-turn

Rumours that the French banking group Crédit Agricole is poised to announce that it no longer has any interest in bidding for the mortgage bank Alliance & Leicester sent shares in the UK's third largest mortgage lender sharply lower, off 18p to close at 1,149p.

Bid talk has been in the air for most of the year, but with Crédit Agricole having just been given clearance to make a €3.1bn (£2.1bn) bid for Emporiki Bank, an Athens-based lender, traders decided to book some profits. Even so, most traders do not expect the shares to retreat all the way back to the 975p level they were trading at before stories of a bid first surfaced. With rumours swirling around all day, the best the French bank could say was that it had not made up its mind yet over A&L.

The Anglo-Swedish pharmaceutical giant AstraZeneca finally succumbed to a bout of profit-taking after the Dutch broker ING Financial Markets downgraded the stock from "buy" to "hold" on valuation grounds. The broker said that the recent rally, mainly based on takeover speculation and exceptional newsflow on the anti-cholesterol drug Crestor, means that "the rewards no longer outweigh the risks" of owning the stock.

Even so, industry watchers remain convinced that there will be another round of consolidation at the top end of the market, with GlaxoSmithKline and the Swiss group Novartis thought to be running the rule over a bid. AstraZeneca fell 45p to 3,219p, while GlaxoSmithKline was also high on the list of FTSE 100 fallers, declining 15p to 1,506p.

London shares struggled for direction in a day of subdued trading, with US markets closed for Independence Day celebrations. After six consecutive positive sessions, the FTSE 100 fell 0.9 to close at 5,883.5.

Marks & Spencer was well bid after a bullish update from Goldman Sachs, giving the shares a new target price of 691p. The US broker believes that a trading statement, due on Tuesday next week, will lead to further upgrades to forecasts with the group performing strongly in clothing and food. The shares added another 11p to close at 598p.

Traders are betting that a month after confirming that it is in offer talks, a firm bid will come in for the photo booth operator Photo-Me International. Traders expect a private-equity-backed bid for the group valuing the shares at an initial 130p, giving the company an enterprise value of £500m including debt. The shares were well bid all session and closed 6.75p firmer at 112.75p.

Despite a mixed trading statement, Rank Group was well supported by traders as speculation mounted that the group will face a bid from gambling rival Ladbrokes once the sale of the restaurant chain Hard Rock Café is completed. Rank expects to make £500m from the sale, the proceeds of which traders believe will be used as a sweetener for shareholders in the event of a bid. Rank added 5.75p to close at 204p, while Ladbrokes suffered as traders decided to take some profits, falling 5.25p to 404.5p. Rightmove, the online property group, added 12p to 372p before debut results today. House broker UBS is expecting the group to report pre-tax profits of £16m, although with few brokers researching the stock traders said the market has little to go on.

As expected, Retail Decisions, 25p better at 176p, confirmed it has received a number of unsolicited offers. The shares were strong in Monday's market as traders speculated that offers would come in for the card issuer and retail fraud prevention group.

The word in the market is that a mystery buyer is building a big stake in the oil exploration and production minnow D1 Oils with a view to launching a full bid for the company later this summer. Volume was good, with just under a million shares changing hands, and some traders are speculating that an offer could come in for the group at more than 400p per share. Market makers said that "serious people" were among the buyers yesterday, as the shares closed 20p firmer at 278p.

Interlink Foods, after a grim day of trading on Monday, staged a small rally after dropping another 19p to 284p in early deals. Some traders still believe the company is poised to warn on earnings for the second time since the start of May, but market makers said retail investors were backing the stock in the belief that current trading is not as bad as is widely believed. The shares added 18p to 321p.

Two new floats on AIM - both placed by Evolution Securities - had an encouraging first day of dealings. Eros International, a distributor of Bollywood films, was well supported, closing at 191.5p, an 8.8 per cent premium to the placing price. The restaurant group Tasty was gobbled up by investors after a placing at 52p, closing at 83.5p, a 60.6 per cent premium.