Market Report: Hunt for next bid target homes in on Commercial Union

The stock market seems to be in little doubt where the next round of cross-border takeover action will occur - among the insurance giants.

Commercial Union is the favourite target. With Panmure Gordon and Societe Generale Strauss Turnbull among those drawing attention to CU's merits the shares bounded to a 864p peak, up 45p.

The planned BAT Industries financial merger with Zurich Insurance, the Swiss group, is not the only deal captivating the market. Italy's largest insurer, Assicuraziono Generali, got in the act by launching a pounds 5.7bn hostile bid for France's number two AGF.

Among those on the sidelines is Germany's aggressive Allianz insurer. It is not expected to sit by while the European insurance industry indulges in a massive consolidation.

CU, with extensive interests in France, could be an important element of any grand Euro design. If, as some suspect, Allianz launches a counter bid for AGF, the Italians could turn their attention to CU.

PG has put a 1,000p target price on CU and will today produce a 20-page buy note.

Other insurers to join in the fun included General Accident, up 28.5p to 1,157.5p; Legal & General, 10p to 515p and GRE 3.5p to 345.5p. Royal & Sun Alliance added 5p to 645p with SBC Warburg talking about a 780p target.

After Monday's takeover excitement the rest of the market settled down with Footsie shading 1.2 points to 5,298.9; the main supporting indices, however, continued their catch-up run, reaching new highs. Firm government stocks provided some support and the latest slowdown in retail sales eased interest rate worries.

Still, the British Retail Consortium survey took the shine from Dixons, off 13p at 682.5p, and Marks & Spencer, 12p at 640.5p. WH Smith, on the Tim Waterstone talks, gained 15p to 406.5p. Smith said it would consider the proposals put forward.

BG, after its deal with its regulator, firmed 5.5p to 264p and share buy-back hopes flushed Thames Water 14.5p higher to 883.5p.

Medeva, ahead of a suggested analysts meeting, put on 9.5p to 227.5p. and SkyePharma hardened 2.5p to 56.5p on SocGen support. Shield Diagnostic slumped 100p to 617.5p in response to the surprise retirement of managing director Gordon Hall, who sold 250,000 shares.

HSBC fell 47.5p to 1,989.5p, flustered by another Hong Kong fall; Salomon Brothers remain buyers.

EMI spun 15p higher to 597.5p on continuing bid hopes and Dalgety, the restructuring pet foods group, rose 15.5p to 270p with talk of corporate activity. Brittons, the packaging group, collapsed 24p to 98.5p as the American Carauster Industries abandoned its takeover ambitions. API, unchanged at 610p, is thought to hover.

Berkeley, the upmarket house builder, helped the building sector with its second cash call this year. Its managing director Tony Pidgley has a reputation for correctly reading the market; so his decision to increase developments helped sentiment. Berkeley fell 32p to 728.5p.

Regal Hotels' rumoured deal turned out to be a link with a Malaysian investment group. Regent Corporation, an offshoot of the Malaysian operation, is taking a 20 per cent stake as part of a pounds 40m cash raising exercise. The shares fell 1p to 46.5p.

Queensborough, the leisure group up 1.5p to 27.5p, confirmed its move into eating-out, linking with a US group and buying the Cote a Cote concept from Michael Guthrie, the former Mecca chief who is heading the company's restaurant drive.

A downbeat trading statement from First Leisure Corporation lowered the shares 3.5p to 287p.

Cowrie, the transport group, retreated 9.5p to 369.5p as it greeted its new name - Arriva. The original name, which embraced the group for more than 50 years, "looks at first sight like a farmyard animal," said a spokesman.

Phonelink, the online information group, rose 9.5p to 49.5p. It is snuggling closer to its continental shareholder, Reggerborogh Beheer has lifted its stake 8.3 per cent to 16.6 per cent and taken options to increase its shareholding.