Market Report: Northern Rock bounces amid takeover chatter

As the market rebounded yesterday, the only chatter doing the rounds involved Northern Rock. Trading floors were awash with gossip that "four or five groups" were supposedly targeting the beleaguered lender. One trader said the name in the frame yesterday was Spain's Banco Bilbao Vizcaya Argentaria. He added that HSBC and Lloyds TSB, which reportedly bid last week, were also strongly linked with a move. The Newcastle group closed as the second highest riser, up 8.22 per cent at 306p, after the Government stepped in on Monday evening to guarantee its deposits.

Alliance & Leicester rebounded as fears the group was set to follow Northern Rock's lead proved unfounded. The lender made up the losses it incurred the previous day, closing up 32.17 per cent at 793p. Dresdner Kleinwort set a target price of 840p although it added: "We won't pretend that this upgrade is anything other than an opportunistic reaction to a share price that fell more than 30 per cent in a day." One trader said: "There was a smell of burning flesh from the bear raiders in Alliance & Leicester, which was nice to see."

Standard Chartered rose with the sector as well as news it was set to buy American Express Bank from American Express Company for about $860m. It closed up 4.15 per cent at 1530p.

Drax Group was up after it had taken a hit in the wake of interims last week. The power company was up 3.9 percent to 612.5p as investors saw the power sector as an opportunity to buy.

The FTSE 100 rebounded yesterday morning as the Government looked to steady the public's nerves over Northern Rock. Trading was quiet in the morning as the market waited for Lehman Brothers to report, but soared 100.5 points to 6,283.3 as Wall Street opened positively.

Solid interims boosted insurer Resolution by 3.07 per cent to 655p. Pre-tax profits more than tripled from £118m in the first half of 2006 to £395m this year, while the group added that the merger with Friends Provident was progressing.

Lonmin was the worst performer of the day after Credit Suisse cut its earnings per share estimate for this year by 16 per cent. The broker said it had reduced its estimates after a strike at its Marikana mine. "Given the already strained operations due to smelter problems, grade issues at mine etc., there was little room for negative surprises," it added. The stock closed down 119p at 3170p.

Another stock to take the hit was Marks & Spencer, after Evolution Securities downgraded its price target from 720p to 620p "in light of a more difficult trading environment". The note caused the group to shed 0.70p to 570.5p. The broker said its concerns for the retail sector was rooted in the belief that consumer confidence was set to take a knock.

On the mid tier, the department stores group Debenhams slumped 3.79 per cent to 101.5p after it reported a fall in sales, although it said profits should remain in line with market expectation. The brokers deserted the stock in droves with Numis, Dresdner Kleiwort and Evos cutting their targets. At the other end, Assura Group topped the risers after posting a strong set of half year numbers. The group, which provides property, pharmacy and medical services, doubled pre-tax profits to £26.6m. It sent the stock up 8.25 per cent at 175.25p.

Bradford & Bingley rose as it set about reclaiming its losses from the previous day. The lender closed up 6 per cent at 295.75p.

Investors piled into Southern Cross Healthcare Group, which climbed 2.83 per cent to 13.75p after closing a deal with Bondcare Group, to manage 39 elderly care homes. This brings the total number of homes managed to 710.

Among the small caps, Celtic Resources was up after it received a preliminary approach from an unnamed suitor. The shares soared 9.61 per cent 222.25p on the news, which had traders speculating that the bidder was Severstal. The Russian group, which missed out in the battle for Arcelor to Mittal Steel last year, took a 22 per cent stake in Celtic several weeks ago.

Super-yacht petrol suppliers are clearly having a good year, as Deuxmil Marine proved yesterday, doubling its pre-tax profit. The executive chairman was in bullish form, saying the second half of the year was traditionally stronger, sending the shares up 8.7 per cent to 6.25p.

The index did not make happy reading for investors in Absolute Capital Management. Their stock took a bath after co-chief investment officer, Florian Homm, resigned, sending the shares spiralled 69.62 per cent, or 271.5p, to close at 118.5p, by far the worst performer on the day.

Arc Fund Management Holdings was off despite record results. The group closed down 2 per cent at 12.25p on a bout of profit taking, as first-half returns rose from £58,000 in 2006 to £324,000 this year.