Market Report: FTSE 100 rise peters out after 11 per cent annual gain

Investors failed to come up with a year-end rally. The FTSE 100 started the day just 20 points short of the 2006 high, but ended 20 points down instead.

In predictably thin dealing on the last trading day of the year - with business ending early at 12.30pm - 66 of the blue-chip index's stocks closed lower, leaving the FTSE 100 at 6220.8. Still, the index rose almost 11 per cent over the year, followinga 17 per cent increase in 2005.

The fund management group Amvescap was the lead gainer in the FTSE 100, with a 9p rise to 596p, on reports it had failed in its attempt to buy Putnam Investments from the US group Marsh & McLennan. Shareholders had feared it would overpay, so there was relief. According to a US press report, Marsh & McLennan has agreed in principle to sell its Putnam investments division for $3.9bn (£2bn) to the Montreal-based holding company Power Corp of Canada.

The price apparently being paid by Power Corp is at the higher end of most estimates. This added another leg to the positive sentiment towards Amvescap. As Putnam is a similar business to Amvescap, traders pointed out the sale price suggestedthe London-listed group was undervalued.

Many stocks that lost out yesterday were coming off all-time highs. This showed, dealers said, it was just a bit of end-of-year profit taking. This included Scottish and Southern, off 25p to 1554p, Slough Estates, down 10.5p to 785.5p, National Grid, 8.5p lower at 737p, Xstrata, 5p down at 2550p, and Centrica, 4.5p worse at 354.5p.

Corus shares gained 0.5p after the chairman of the Indian group Tata Steel, Ratan Tata, gave a television interview in India. Tata has until the end of January to raise its offer for the British firm or see it fall to Brazil's CSN. Some suggested Mr Tata had indicated his group would come back with more money, but analysts pointed out the language in the interview was rather ambiguous.

On the positive side, Mr Tata said: "What drove me and Tata Steel to look at the [Corus] acquisition was strategically and theoretically there was an opportunity, unequal, in a matter of speaking in the steel industry, of putting together two companies and their differences into one company." However, he also said: "There is a limit to which one might foresee the enterprise value to be; I think pursuing something beyond that would be giving way to your emotions."

"The interview could really be read either way," said one market observer with an interpretation that explained the limited gain in Corus yesterday.

Shares in Friends Provident slipped 1.25p to 217p, despite support for the company from the broker SG Securities. In a note issued to clients, SG said Friends Provident continues to be one of the fastest growing UK life companies. It said that, within the UK, the firm had an excellent franchise in pensions and protection, with an efficient distribution model and aggressive growth targets. The broker suggested the company was open to M&A activity, and said it has a strong balance sheet and healthy cash reserves.

Persimmon, up 16p to 1526p, found favour after data showed that the housing market remained strong. British mortgage approvals rose 9.1 per cent in November from a year ago, according to the British Bankers' Association. November is usually a quiet month for the housing market. The approvals reading is a forward-looking indicator of the health of the housing market, suggesting the first few months of 2007 would be strong for the likes of Persimmon.

Companies in natural resources had mixed fortunes. On the plus side was Cairn Energy, up 21p to 1,799p, Kazakhmys, 15p better at 1110p and Lonmin, 10p better at 3,010p. At the other end of trading, BP lost 4p to 567.5p, Shell was 12p down to 1,790p and BG Group slipped 4.5p to 693p.

The Dulux paint maker ICI, up 1p to 452p, provided the large-cap bid rumour of the day, a recycling of the story that had excited punters in recent days. With the £1.2bn sale, in November, of its Quest unit, ICI shed the legacy of debt inherited from its purchase of the fragrance and flavourings businesses from Unilever. That left the company, worth £5bn on the stock market, a more attractive bid target.

Word is that the bidder circling ICI is Holland's Akzo Nobel. The Dutch group is demerging its Organon pharmaceuticals business, freeing up the company to expand in coatings. The Organon transaction should be completed in the first quarter of 2007, allowing Akzo to focus on developing its coatings business, which includes Crown, the consumer brand.