Market Report: Rumours of M&S and Tesco tie-up add spice to FTSE

A DAY that had started with the confirmation of a huge deal - the merger between Carlton and United News - ended with rumours of another mega tie-up between Marks & Spencer and Tesco. In between, the leading indexes reached new peaks thanks to a swathe of bid rumours and an upbeat Wall Street.

The struggling Marks & Spencer was boosted by a last-minute buying raid as a pool of hot money started chasing the stock. Before the buying spree, M&S had hit another low of 228p as investors continued to take a gloomy view of pre-Christmas shopping.

However, after the hot cash set in, the stock rallied some 10p to close a mere 0.25p lower at 239.75p. The dealing rooms' gossips suggested that this late afternoon turnaround coincided with a return of bid rumours.

The market has long been speculating that the recent slump in M&S shares from their yearly peak of 416p would trigger a bid from one of its rivals. According to yesterday's rumours, the time has now come for the disgraced giant of the high street to fall prey to a hungry competitor.

The hot tip was for a 400p-per-share merger with Tesco, up 5.75p to 175p in fairly chunky turnover. The UK's leading supermarket needs to counter the price threat of the Wal-Mart/Asda combo and a move for M&S could boost both its size and its offering in one fell swoop.

Tesco-watchers believe that the supermarket is keener to expand outside the UK, but the opportunity of buying Marks & Spencer on the cheap does not come round every day and an opportunistic merger cannot be ruled out. Other potential M&S bidders include Kingfisher, 16p lower to 619.5p, and Archie Norman's shell Knutsford, up 31p to 270p.

The rest of the retail sector was also excited. Perennial bid target Storehouse rose 1.25p to 48.5p in big turnover on rehashed rumours of a bid from Philip Green or Knutsford.

Underperforming supermarket Somerfield closed up 2p to 90p after Merrill Lynch sold a 1.2 per cent stake held by a mystery institution to a rival fund manager. Rival Sainsbury's fell 1.75p to 314.5p after Merrill Lynch downgraded.

The overall market built on Thursday's gains as the corporate action rush gathered pace. The FTSE 100 hit a fresh record - but only just - rising 2 to 6,684.8. Much of the credit for the blue chips' performance went to Wall Street.

The Dow Jones came back from the Thanksgiving rest day with a convincing opening which helped to wipe out London's mid-morning losses.

Volume was a hefty 1.7bn shares, thanks to a 128 million turnover in Vodafone Airtouch, down 2p to 298.25p, on Mannesmann bid uncertainty - and an incredible 221m volume in minnow Pacific Media - up 1p to 4.715p ahead of a rumoured Chinese Internet deal.

The FTSE 250 finally caught up with the leaders, rising 24.7 to a new all-time high of 6,182, while the Small Cap was also in record territory after a 10.4 point rise to 2,872.4. Once again, telecoms, media and banks did most of the running among blue chips.

Cable & Wireless rang up a 58p rise to 867p on late rumours of a bid, possibly from Deutsche Telekom. The market is convinced that a Sunday newspaper will splash on the story.

Telecom equipment maker GEC soared 82.5p to a best-ever 962.5p on reports that it is cheap compared with its US peers and could be taken over. The shares were suspended after the close to allow GEC to change its name to Marconi.

Energis missed out on the fun, plunging 82p to 2,631p after a downgrade from Morgan Stanley.

In media, confirmation of the merger talks between ITV groups Carlton, 22.25p better at 576.5p, and United News & Media, 23.5p up to 769p, excited BSkyB. Rupert Murdoch's satellite broadcaster beamed 61.5p to 820.5p on whispers that it would be the next media group to consolidate.

The acquisition of a 24 per cent stake in German pay-TV channel is a foregone conclusion but there are additional rumours of a merger with French rival Canal+.

Granada rose 9.5p to 540p amid whispers that it might counter the Carlton/United merger with an offer for Carlton or a strike at fellow ITV group Scottish Media, up 28.5p to 895p.

There is also a chance that Granada might want to boost its leisure side by striking at Whitbread, 5.5p higher at 577p, or even Bass, 40p better to 675p, after being given the green light to buy Allied Domecq's pubs in exchange for a series of undertakings. Rival Scottish & Newcastle brewed 23p higher to 461.5p in sym- pathy.

As for the banks, Bank of Scotland plummeted 43p to 724p after raising its offer for NatWest, up 47p at 1,518p, to 1,532p per share. Royal Bank of Scotland, down 14p to 1,328p, is now odds-on to launch a counterbid with its results on Thursday.

More deals in the sector should follow, possibly involving Abbey National, 43p lower to 1,084p, and Alliance & Leicester, down 2.5p to 884.5p.

Hi-tech stocks continued to be in demand as the US Nasdaq index roared away. Computer group Logica soared 183p to 1,381.5p on hopes of a deal. The company was also helped by a huge rogue trade which saw its shares go for 3,360p when the price was 1,331p to 1,370p.

Computer-maker Psion, 270p higher to 2,404p, and digital TV box maker Pace Micro, 29.75p better to 498.75p, were helped by rumours of US deals. The tech-laden techMark index ended 70.12 points higher at ,2949.10.

Electronics Boutique bucked the trend, plumbing new lows after a 5.5p fall to 41p as the recent profit warning continued to hurt.

Holiday struggler Thomson Travel stretched 5.5p higher to 95.5p on vague whispers that the Thomson family could sell its stake to a predator, while mining group Lonmin dug up a 38p rise to 542.5p on talk of corporate action.

Small companies were their usual lively selves. E-commerce specialist Infobank confirmed merger talks and soared 162p to 1,207.5p. However, rumours of a deal with Microsoft are believed to be wide of the mark.

Money Control, a maker of coin validators for amusement machines, cashed in on a 25.5p rise to 155p after unveiling a 170p-per-share cash offer from US rival Coin Acceptors.

Reflective ink manufacturer Reflec rose 0.7p to 16.87p after agreeing a distribution deal with US group Play Industries. There are rumours of an imminent multimillion-pound deal and of directors' share buying.

AIM-listed Internet group Meda@invest rose 0.5p to 9.5p on rumours of two deals. Tadpole Technology rose 3.25p to 49.25p on returning whispers of a deal with a major telecom group for its portable hi-tech kit.

Property group Wates City of London rose 2.75p to 85.25p after rival Grosvenor Estates increased its stake from 13 to 17.2 per cent, fuelling speculation of a bid.

SEAQ VOLUME: 1.748BN

SEAQ TRADES: 103,124

GILTS INDEX: N/A

f.guerrera@independent.co.uk

THE HI-TECH minnow Telspec yesterday finally caught up with its peers with a 31.5p rise to 115.5p.

While telecoms stocks were soaring Telspec, which makes switches for mobile phones, had been left behind somewhat and yesterday's rise should go some way to redress the balance. Followers of the company are convinced that it is lining up a major contract with a blue-chip mobile telephone manufacturer such as Nokia or Ericsson.

RECENTLY floated NewMedia Spark, led by Luke Johnson of PizzaExpress, is attracting a lot of interest. Shares in the company, which provides capital for Internet start-ups, jumped 28.5p to 113.5p after it boosted its warchest with a pounds 60m placing at 60p.

Rumour has it that the company is looking at several deals with quoted and unquoted companies; one is said to involve an established Net player such as Freeserve.