Market Report: Takeover buzz lifts trade in Royal & SunAlliance

Royal & SunAlliance was the talk of the stock market yesterday, as one high-rolling investor placed a £24m bet on the insurance company's shares.

A frenzy of rumour-mongering was sparked by a large trade in the derivatives market, and RSA shares surged amid talk that AIG, the US general insurance giant might be about to pounce.

One investor bought 30,000 RSA call options, giving them the right to buy 30 million RSA shares at 80p in December. That looked a very brave call given where RSA shares started the day, but was pretty close to being in the money by the end of the session, when RSA shares ended up 5.75p at 79.5p.

An AIG bid seemed to have been privately denied to the market professionals who called the companies yesterday, but that did not calm the shares, which were four times as heavily traded as usual. Hank Greenberg, the industry guru who heads AIG, gave a presentation earlier this week on the insurer's expanding and acquisitive overseas operations, including those in the UK. And RSA investors have long been on bid alert, believing that the efforts of the new chief executive, Andy Haste, who is tidying up the business after its old life assurance arm got into difficulties, will make RSA attractive to a bidder before the stock market fully recognises it has returned to health.

Some traders also threw Old Mutual's name into the ring as a potential bidder. Old Mutual is searching for a UK acquisition but has never really settled on what sort. Its shares were up 2.75p at 124p after an upbeat results presentation.

Investors would probably bite hands off to get at a 100p-a-share bid for RSA. With insurance premiums having peaked, the growth of recent years may be hard to beat. This thinking prompted a little profit taking in Catlin Group, an underwriter with operations at Lloyd's of London and in Bermuda. After a strong run, its shares were off 10p at 363p.

And there was a bigger sell-off in Jardine Lloyd Thompson, which acts as a broker for insurers. As well as the squeeze from lower premium rates, JLT will also be suffering the fallout from Hurricane Eliot ­ the intervention of Eliot Spitzer,the New York attorney general, whose attack on rival Marsh & McLellan has in effect ended contingent commissions (fees paid by insurers based on the volume of business). Merrill Lynch told its clients to get out of JLT, arguing that the scandal will force brokers to accept lower fees. JLT shares put in the worst performance by a mid-cap, down 16.5p at 460.5p.

With weak oil prices and decent figures from the computer giant Hewlett-Packard, Wall Street was buoyant and the Dow Jones Industrial Average showed a three-figure gain when London closed. The FTSE 100 was up 25.5 points at 4,795.9. A variety of companies who benefit from stronger equity markets emerged with strong performances, including: Amvescap, the fund manager, up 6.5p at 326.5p; the life assurer Friends Provident, up 5.25p to 148p; and, up 6.25p at 236p, ICI, the chemicals giant whose pension deficit has been a drag on the shares for several years.

The rise in the market as a whole came despite a wide-spread collapse across the retail sector. Dixons, off 8.25p at 158.5p, blamed its profit warning on falling house prices and consumer confidence. The handful that bucked the trend told us more than the dozens whose shares fell. Investors sought players with a strong niche position: Topps Tiles was up 7p to a new record of 208p, boding well for figures next week; HMV was also up a penny to 245p as it clears shelf space for DVDs in the run-up to Christmas; and The Body Shop was 0.5p better at 181.75p, consolidating its recovery.

Antofagasta, the Chilean copper miner, was 44p better at 1,130p on talk of a bid from Phelps Dodge of Arizona. And Anglo American shares rose 31p to 1,291p as the stock was included in an MSCI index, prompting tracker fund-buying.

And further down the mining sector, there were glittering performances from some of the gold companies as the price of the precious metal hit a fresh 16-year high. Peter Hambro Mining was 23.5p better at 580p, a record. African Gold, which had strong drilling results in Ghana earlier this week, jumped 2p to 9.25p. And Galahad Gold, which had positive Alaskan drilling results yesterday, was up 1.5p to 14.5p.

Low & Bonar, the plastics company, was up 5.5p to 121.5p on talk that the Icelandic investment company, AFL Fjarfestingarfelag, which has already accumulated a 17 per cent stake, is looking to buy more. And the slump in the share price of punters' favourite BioProgress, accelerated. Its shares were down 14.75p at 69.5p as some investors faced cash calls to fund their losses.