Market Report: Rio Tinto mega-merger rumours lapped up

Summer may be limping to a close, but silly season was in rude health with rumours of the mega-merger in the mining industry. Rio Tinto flew to the top of the leaderboard on chat that rivals BHP Billiton and Brazil's CVRD were considering teaming up to buy it. The market lapped up the story, perhaps forgetting that the rumour reared its head in May, sending Rio up 11 per cent in one morning. Yesterday it rose 5.42 per cent to 3716p, while BHP closed 3.95 per cent higher. The chat boosted the sector as a whole, which also benefited from a rise in copper prices.

Shares in BG Group enjoyed a samba-style boost after it discovered a new oil field 273km off the south coast of Rio de Janeiro. The oil and gas group closed up 4.83 per cent at 824.5p.

The FTSE 100 zig-zagged throughout the day as investors looked for indicators to call the future of the market. It opened up on the back of a late rally on the Dow, slumped 53.2 lower in the early afternoon before strengthening to close at 42.6 points up at 6313.

The UK banks dragged on the market again, with Northern Rock the lowest on the day, down 3.03 per cent at 672p. One trader said: "No one wants to own banks at the moment. Everyone's worried about the sector and the next potential black hole." Standard Chartered was also off, shedding 2.11 per cent to close at 1485p after its head of risk and special assets management resigned.

Lowest stock on the index was Drax Group which took a pasting from profit-takers after its interim results. It ended 5.63 per cent lower as it closed at 637.5p. This came after the energy group beat expectations, using forward contracts to offset lower margins.

The worst performer on the mid tier was also hit by a negative response to its first half results. Benfield Group stumbled after it announced pre-tax profits had fallen 5 per cent. The share price had been on the slide this week in anticipation and closed down a further 5.48 per cent at 289p.

At the other end of the spectrum, AMEC smashed expectations after more than doubling its first-half profits, and confirming market speculation it was looking at potential acquisitions. Earlier this week rumours emerged that the project management group was set to bid for Wood Group. Yesterday, it admitted considering a transformational acquisition, although failed to name potential targets, and added it was looking at "small bolt-on acquisitions". The stock finished the day up 4.66 per cent at 685.5p, the second highest riser behind Randgold, which rose 6.21 per cent.

As England's football team continues its hamfisted attempt to qualify for the European Championships this week, it won't just be manager Steve McClaren's biting his fingernails. Umbro, which makes the kit, was hammered yesterday after admitting poor sales of the replica strip will hit full-year profits. It has been knocked by the lack of a major tournament this summer – sales soared during last year's World Cup – as well as a nation's apathy at recent performances.The share price closed down 12.97 per cent at 120.75p.

Problems of a different sort hit Kazakh-focused Max Petroleum, which was forced to suspend its shares in the morning. The group said in a statement it had suspended the chief executive and chief operating officer pending an investigation into possible undisclosed options. There was fervent speculation in the markets that more newsflow will emerge over the coming weeks, with rumblings of some issues relating to Roxi Petroleum, which was also suspended.

Further news on the takeover battle for Consolidated Minerals emerged yesterday morning. The Australian group withdrew its recommendation for the A$3.95 bid from Palmary Enterprises of Ukraine and threw its weight behind the A$4.10 per share offer from Pallinghurst. Consolidated's board added that shareholders should ignore the offer from a third interested party, Territory Resources. The higher bid drove the AIM-listed miner up 1.5p to 162p.

Top AIM riser was Zenith Hygiene, which more than doubled as it moves closer to getting its house in order. The company's value nosedived after its bearish interims in May, but buyers were piling back in yesterday. While the cleaning product developer still predicted full-year losses, it announced turnover had jumped 10 per cent. It also appointed Gavin Gracie as interim chief operating officer as it looks to resolve some of the issues that have dogged the group this year. It closed up 23.5p at 44.5p, although its still far, far away from its 150p year peak at the start of the year.

Fiberweb shares also reacted violently after it updated its full year numbers. Unfortunately for the non-woven fabric group, that reaction was heavily downwards. The stock has been in freefall since April when it was worth 224p, and it slumped a further 26.69 per cent yesterday to 97.5p on what is effectively its third profits warning of the year.