Market Report: LSE fails to silence the takeover rumours

It seemed that nearly every trader in the Square Mile was yesterday talking about a bid for the London Stock Exchange from Deutsche Börse. That of course does not mean it is going to happen, but it was certainly enough to get shares in the LSE surging. They closed 5 per cent higher, up 19p at 430p.

It seemed that nearly every trader in the Square Mile was yesterday talking about a bid for the London Stock Exchange from Deutsche Börse. That of course does not mean it is going to happen, but it was certainly enough to get shares in the LSE surging. They closed 5 per cent higher, up 19p at 430p.

Takeover rumours circled the LSE for the whole of last week. According to the talk, Deutsche Borse is looking to launch an all-paper offer valuing the company at between 480p and 500p. Over the past month shares in the LSE have soared by 15 per cent as investors have taken the view that the exchange's days as an independent entity are numbered.

Throughout this time the company has refused to comment on the rumours, and so it proved yesterday. "We are not prepared to comment on speculation," said a spokesperson for the LSE last night. But should the group's share price continue to soar on Monday, traders believe that the exchange will come under pressure to make a statement on the matter.

The LSE was certainly not the only bid story in town. SSL International was again on takeover alert as its stock jumped 7p to 283p. The company is said to be vulnerable to a larger healthcare sector predator. ITNet, which last month admitted to having received an approach, rose a further 5.5p to 280.5p as gossips suggested that a deal is near.

Meanwhile, the FTSE 100 rose 5.6 points to 4,694.0. Cairn Energy was the top performer in the index, gaining 41p to 1,441p on hopes that next week's update on progress at the group's Rajasthan prospect in India will boast of a number of new discoveries.

The company's present valuation is very much dependent on the site being a massive success. It is thanks to this prospect that Cairn stock has soared 300 per cent this year and earned the company a place in the FTSE 100. However, Numis Securities urges caution ahead of Friday's statement. It argues that there is already a vast amount of hope built into Cairn's share price and that the absence of major new discoveries could prompt a sharp drop.

The oil and gas explorer has already reported discoveries totalling around 500 million barrels of oil, but according to Numis' calculations Cairn's current share price is also factoring in 300 million barrels of new discoveries. That is too big a premium in the eyes of the broker and it advises investors to reduce their holdings in the company before Friday.

Elsewhere, traders were busy looking to make a quick buck from taking positions in companies just before they go ex-dividend. Severn Trent, which will go ex-dividend on Wednesday, put on 4.5p to 953p. The water giant will pay an interim dividend of 18.2p a share on 6 April and all those on the share register at the close of business on Tuesday will benefit from it. Northumbrian Water gained 2p to 165p as Deutsche Bank lifted its price target to 225p from 175p following last week's final price proposals from industry regulator Ofwat.

Lower down the pecking order, Melrose Resources added 11.5p to 286.5p amid demand for the oil and gas explorer from tracker funds. Melrose, which is looking for gas in Egypt and Bulgaria, is due to join the FTSE Small Cap Index on 17 December. The stock was promoted to the index earlier this week.

Traders bet that next week's full year results from construction group Montpellier will have something for shareholders to cheer about. They could certainly do with some good news. At the start of the summer Montpellier shares halved after a massive profit warning and soon after that the construction group was targeted by animal rights protestors over its plans to help with the building of a new biomedical research facility for Oxford University.

Hamworthy, the marine support services group, ticked 9p higher to 200.5p thanks to a £48m contract win to supply three South Korean shipbuilders with its fuel handling technology. Nord Anglia dropped 8p to 233.5p after Kevin McNeany, chairman of the nurseries group, bagged £5.1m from the sale of 2.2 million shares at 235p. This leaves him with a holding of just under 1 million, or 2.5 per cent of the company.

Highbury House Communications dropped 0.75p to a fresh low of 7.5p as investors fretted about trading at the publishing group and its hefty debt burden. The last time Highbury updated the market was in September, when it warned that it would struggle to meet investor expectations for the full year and scrapped its dividend. Cardiff Property jumped 27.5p to 812.5p on talk the group is close to a £10m disposal of a building in London while Petroceltic ticked 0.5p higher to 10p as a large seller was cleared from the market.

Market Movers

↑ Imperial Tobacco 1,382p (up 27p, 1.9 per cent). Goldman Sachs upgrades the stock to "in line" from "underperform".

↑ Rolls-Royce 254p (up 4p, 1.6 per cent). Malaysia Airlines has picked the company's Trent 900 engines to power its six Airbus A380 aircraft.

↑ Carnival 2,977p (up 33p, 1.1 per cent). In demand ahead of next week's fourth quarter results from the cruise ship giant.

↑ HHG 54.75p (up 5.5p, 11.2 per cent). Confirms the sale of its life unit for £1bn prompting UBS to lift its price target.

↑ Interactive Gaming Holdings 11.5p (up 3.75p, 48.4 per cent). Says it is in talks to acquire a branded telephone credit bookmaker.

↑ Bovis Homes 540p (up 22p, 4.3 per cent). Rumours that the house builder is planning a major return of capital to shareholders excite.

↑ Innobox 8.12p (up 1.37p, 20.3 per cent). Evidence of stake building boosts the stock.

↑ Caplay 3p (up 0.38p, 14.5 per cent). Director share buying drives the stock higher.

↑ Clinical Computing 35p (up 3p, 9.4 per cent). Appoints Stan Newman as a non-executive director.

↓ Centrica 229.25p (down 20.75p, 8.3 per cent). Warns of difficult market conditions and complains of flat margins at British Gas.

↓ BAA 579p (down 7.5p, 1.3 per cent). Reveals slowing passenger growth in November.

↓ Catlin Group 349p (down 21p, 5.7 per cent). Warns of $75m hit from this year's four hurricanes.

↓ British Vita 261p (down 5.5p, 2.1 per cent). Warns that this year's profits will be slightly below those achieved last year.

↓ Maisha 1.62p (down 0.13p, 7.4 per cent). Posts a pre-tax loss of £253,000 for the full year as legal costs mount at the company.

↓ Intertek 691p (down 9p, 1.3 per cent). Morgan Stanley downgrades the company's shares to "equal weight" from "overweight" on valuation grounds.