Market Report: Vedanta surges as miners resume their climb

After a quiet couple of months, mining stocks stormed back to the top of the blue-chip index yesterday as investors warmed to benign US inflation data, making another rise in US interest rates less likely in the short term.

Miners occupied four of the top five risers in the FTSE 100, with Vedanta Resources leading the way, up 73p to 1,341p. There were also some vague takeover rumours doing the rounds, as traders speculated that Vedanta's relatively low market capitalisation and niche position in the Indian copper market would make it an attractive proposition for more industry consolidation. Rio Tinto, 100p firmer at 2,795p, and BHP Billiton, up 38p to 1,027p, were inevitably the names mentioned as possible suitors. Xstrata, fresh from winning the battle to buy the Canadian nickel group Falconbridge, added 79p to 2,285p.

Another story doing the rounds is that PartyGaming was busy buying up stock in the Austrian online gambling rival BWIN Interactive Entertainment, prompting suggestions that PartyGaming will launch a full bid. However, traders pointed out BWIN has recently had its licence to operate in Saxony withdrawn, and a bid would mean PartyGaming entering the more controversial world of sports betting. BWIN is appealing against the decision, but until a final outcome is confirmed traders said the stock is likely to track lower. PartyGaming rose 4.75p to 108.75p.

BP's North American woes show no sign of coming to an end. Senior executives at the oil giant are now facing a class-action lawsuit from disgruntled shareholders who claim that the company knew for years that the Prudhoe Bay pipeline was severely corroded, leading to the partial shutdown of production. With oil prices dropping again on the ceasefire in Lebanon, investors continued to head for the exit. The shares closed 6.5p worse at 608p, a 14.5 per cent decline from the high for the year and significantly worse than the 5 per cent decline at rival Shell, 2p lower at 1,937p.

A bullish note from the broker Citigroup sent the sugar group Tate & Lyle to the top of the FTSE 100 leader board in early deals, 18p firmer at 710p. Citigroup noted the group has consistently outperformed earnings forecasts by 10 per cent for the past five years and expects the company to repeat the trick in the next two years. The US investment bank raised its target from 630p to 800p, and despite some late profit- taking the shares remained strong, closing 8p better at 700p.

The blue-chip index was dragged back by several stocks going ex-dividend. BT Group fell 7.25p to 233.5p as investors got 7.6p per share back, while the banking groups Barclays, 6.5p worse at 649.5p, and Royal Bank of Scotland, 17p worse at 1755p, gave back 5p and 17p respectively.

The combination of ex-dividend stocks and weak oils meant the FTSE 100 was unable to capitalise on the strong performance in mining, and in spite of a recovery from an early 49- point loss the blue chips ended 1.3 lower at 5896.6.

Shareholders of Morgan Crucible were left wondering why the investment bank Morgan Stanley tried to place a line of stock, thought to be 7.3 million shares, at 272p yesterday, less than a week after the company confirmed that it is in talks that may lead to an offer. The placing encouraged other sellers in the belief that if major shareholders aren't prepared to hang around and wait for developments neither should they. The shares fell 5.75p to close at 270p.

In the small caps, Oxus Gold took another hit after Marakand Minerals, an AIM-quoted mining company with operations in Uzbekistan in which Oxus has an 85 per cent stake, received notification on Tuesday that its assets would be transferred without compensation to a state-owned mining company, Almalyk. Marakand is seeking further clarification of the decision and expects to make another announcement later this week. However, traders are taking the news badly, sending Oxus 8p worse to 27p and Marakand 2p lower to 6p. RAB Capital, the hedge fund group that owns 30 per cent of Oxus, was also in the red, closing 0.5p weaker at 98.5p.

Bid rumours did the rounds in the housing sector, with speculation surroundingOakdene Homes, the only sector representative on AIM. The shares rallied 23p in early deals to 183.5p on talk of an offer from rival Gladedale, before profit-taking and a denial from the firm saw the stock close 18.5p up at 179p. Despite the denial, the word in the market is a deal will be struck sooner rather than later.