Market Report: Dealers bet on Spanish getting Abbey habit

Abbey National has received another takeover approach from Banco Santander Centro Hispano, the Spanish group which dallied with the idea of making an offer earlier this year, according to a flurry of rumours across the City yesterday.

Abbey National has received another takeover approach from Banco Santander Centro Hispano, the Spanish group which dallied with the idea of making an offer earlier this year, according to a flurry of rumours across the City yesterday.

Santander was previously said to have ruled out a second attempt to snaffle the UK's weakest mortgage lender, which is also said to have attracted the interest of Citigroup, the mighty US corporation.

But yesterday, bid speculation returned with a vengeance and Abbey's shares were up 10p to 497p in almost four times the usual volume of trading. With two of the world's biggest banks approaching with their slide rules, the prospects of a bidding war for the UK company look high.

Royal Bank of Scotland, which has a cross-shareholding with Santander, has said it stands ready to help finance a Spanish assault, although there was some talk that Santander is in fact selling down its holding in RBS to raise cash for what would have to be an £8bn bid for Abbey. RBS shares closed off 5p at 1,615p.

Although Abbey shares had been up 8 per cent at their high point, they were pipped by the end of the day by Centrica, which ended as the best blue-chip performer, up 6.5p, or 2.9 per cent, at 227.5p, amid chatter that two last-minute bidders had appeared in the race to win control of the AA, which Centrica is auctioning. A first deadline for bids was yesterday lunchtime, it was reported.

In the other direction, £2.3bn was wiped off the value of the UK's two biggest drug makers, as investors worried that both face disappointing sales of their most important new products. Shares in GlaxoSmithKline skidded 22p lower to 1,148p after analysts at Citigroup predicted the company's best-selling product, Advair for asthma, would find it difficult to expand its sales into more serious lung conditions. Many doctors are sceptical and regulators have put tough restrictions on Advair's use. GSK is currently fighting to protect its reputation after being accused of fraud by Eliot Spitzer, New York state's attorney general, and there are fears that further legal actions over the anti-depressant Seroxat could weaken the company.

Meanwhile, AstraZeneca's rivals are having a field day with scepticism, repeated in a letter to the medical journal The Lancet yesterday, over the safety of its fastest-growing pill, Crestor, for fighting cholesterol. The company's shares were off 58p at 2,501p, the lowest level since last August.

The heavyweight pharmaceuticals companies pushed the FTSE 100 into the red for the session, ending 9.1 points down at 4,494.1. The mid-cap FTSE 250, by contrast, surged 31.7 to 6,225.6 thanks to an extraordinary orgy of buying of housebuilders' shares. Berkeley's decision to return cash to shareholders sent it up 267p to 1,197p, but close behind were the other quality builders, McCarthy & Stone (up 43p to 575p) and Redrow (up 28p to 356p). All the rest were up, too, with Persimmon rising 19p to 602p and Barratt Developments jumping 15p to 580.5p, to name just a couple.

There was a revival of bid talk at Rentokil Initial - the rat-catching, hand-drier installing, profit-warning conglomerate - which, although a ha'penny lower at 147.75p, was traded in heavy volume. And another recent disappointment, Courts, the furniture store which is now effectively at the mercy of its banks, lurched a further 28.5p down to 151.5p - its lowest since 1993. One fund manager (JP Morgan, according to the rumours) was so desperate to sell, it offloaded 1.65 million shares at just 135p

Jardine Lloyd Thompson's finance director, George Stuart-Clarke, "has not and does not release new material information outside regular reporting dates and official statements". Let's be very clear about that. The insurance broker put out a stock exchange announcement to make it very clear yesterday. Why? Because Ben Cohen, an analyst at UBS, had written earlier in the day that "following a discussion of current trading, and an analysis of volumes and margins, we have made material reductions to our earnings and dividend forecasts". UBS now has a "reduce" recommendation on the shares, which tumbled 46.25p to 435p. Inside information or no, Mr Cohen was convincing in his argument that the JLT's global reinsurance sales are weak and its US personal insurance business is weaker still.

Shares in the building firm Severfield-Rowen, a steel specialist, were up 5p to 367.5p on its work for Heathrow's Terminal 5. And a magazine tip sent Asia Energy, the Bangladeshi coal miner, up 6p to 78.5p.

Matrix Communications, the computer networks group, rebounded 0.15p to 3.1p. The company was one of more than 100 UK small-caps to find they were listed on the Berlin-Bremen exchange, where short-sellers were said to be looking for stock. Matrix has negotiated to have the listing cancelled.

MARKET MOVERS

Bradford & Bingley 277.25p (up 6.5p, 2.4 per cent). Cuts 600 jobs.

Westbury 432.5p (up 16.5p, 4.0 per cent). Berkeley's pay-out highlights financial strength of housebuilders.

Morse 135p (up 10p, 8.0 per cent). Cazenove upgrades to "buy".

George Wimpey 363p (up 12p, 3.4 per cent). Berkeley's move fires sector.

Photo-Me International 105p (up 4.5p, 4.5 per cent). Dividend expected to be restored with results next week.

Bovis Homes 525p (up 16p, 3.1 per cent). Berkeley.

Bioquell 158.5p (up 10p, 6.7 per cent). Recent director share buying.

Bellway 750p (up 15p, 2.0 per cent). Did we mention that the housebuilders were in extraordinary demand?

Deal Group Media 7.75p (up 0.75p, 10.7 per cent). Advertising.com, another online marketing adviser, was taken over by AOL at a racy valuation.

Lok'nStore 105p (up 2.5p, 2.4 per cent). JO Hambro buys 7 per cent, similar stake to that it took in Lok'nStore's rival Mentmore before it got taken over.

Telewest Communications 0.88p (up 0.14p, 18.9 per cent). Financial restructuring draws nearer.

John Menzies 450p (up 35p, 8.4 per cent). Says recent trading has been above market expectations.

NeuTec Pharmaceuticals 322.5p (up 27.5p, 9.3 per cent). Optimism over its treatment for hospital superbugs.

BHP Billiton 481p (up 8.75p, 1.9 per cent). Chinese growth story intact.

Exel 741p (up 9.5p, 1.3 per cent). Positive trading update.

First Choice Holidays 121.75p (up 2.75p, 2.3 per cent). Summer season sales going well, broker says.

Inditherm 82.5p (up 11.5p, 16.2 per cent). To install its under-pitch heating at Chelsea football club's training grounds.

Henlys 0.3p (down 0.02p, 6.3 per cent). Bus maker's listing terminates here soon.

Royal & SunAlliance 84.25p (down 1p, 1.2 per cent). UBS tells clients to "reduce", citing possibility of disappointing proceeds from life assurance sale.

SEAQ Trades: 176,980

SEAQ Volumes: 3.14bn