Market Report: BAE takes off amid return of bid chatter

The City's gossip engines were fired up and aimed at aerospace group BAE Systems again yesterday.

BAE, which only last month ended merger talks with European rival EADS, is now the focus for some dealers who are speculating that US group Lockheed Martin could be running the numbers on it. But most traders, unwilling to stoke the rumours, played down the story, saying that, although it would be a good fit, "the lack of volume in the stock makes us think there's no substance".

BAE shares jetted up 7.7p to 319.7p. If any deal did emerge, it would hit the same political problems that the EADS deal encountered.

Investors recovered some appetite for risk on Monday night's news that the EU and IMF reached an agreement over Greece's bailout. The deal pushed the FTSE 100 index into positive territory, gaining 12.99 points to 5799.71. But Mike McCudden, head of derivatives at stockbroker Interactive Investor, said: "Once the excitement dies down, attention will quickly shift back to the US and the impending fiscal cliff. Despite the optimism that a solution will be found on time, on light trading volumes as we edge closer towards the cliff, the increasing volatility will keep all but the bravest investors at bay."

Financial stocks were in favour yesterday, and Royal Bank of Scotland booked a spot at the top of the index, up 10p to 295.1p. Analysts at UBS raised their rating from neutral to buy, with a price target of 328p.

Outsourcer Capita announced it had been chosen as the preferred bidder for an education services contract with Staffordshire county council, which would be its biggest contract ever. Its shares lifted 23p to 751p.

On the mid-cap index, bomb detector group Chemring's new boss laid out plans to turn the defence specialist around. Its shares have fallen nearly 40 per cent in the past year after a series of profit warnings but regained 8.2p to 238.2p yesterday after the trading update.

Mid-cap publisher Informa booked in an 11.3p rise to 416.8p after analysts at Morgan Stanley gave it a buy rating and a target share price of 485p. Bid speculation refused to die though.

Has Argentina's president Cristina Kirchner been wasting her breath on the fight to hold on to lucrative oil finds in the Falkland Islands? AIM-listed Falkland Oil & Gas has given up with its Scotia well on the South Atlantic outpost and plugged it. With its partner Noble Energy, it had hoped to find a billion barrels of oil after fellow explorer Borders & Southern Petroleum found gas and some liquids on the islands earlier this year. But the poor-quality Scotia well will not yield oil or gas, and Falkland shares bore down 48 per cent — losing 30.25p to 32.75p.

Mike van Dulken, head of research at Accendo Markets, said: "The share-price reaction is another example of the volatility that explorers generate via their updates. With shares at such depressed levels, we may see some bullish bargain-hunters sniffing around at what they consider an attractive entry level."

Falkland, which now has $220m (£137m) in cash, said it will start a new program of seismic work which could identify better-quality reservoirs in the block. Goldman Sachs, which has put Falkland's share-price target on review, said the company "has sufficient cash to be able to undertake further drilling in the future."

The news also hit shares of other explorers in the area with Borders & Southern declining 2.12p to 150p. Rockhopper Exploration, the closest to commercialisation on the islands, lost only 2.5p to 150p, however.

From Argentina to Oklahoma, shares in AIM-listed oil tiddlers were moving in the right direction on a handful of updates.

Magnolia Petroleum reported better-than-expected drilling results from two wells in Oklahoma, and its shares trickled up 0.28p to 4.15p while Nostra Terra Oil & Gas said it found more oil than it expected at the Chisholm Trail wells in Oklahoma, in which it has a stake. It also holds interests in another three wells in the prospect and its shares squirted up 0.02p to 0.4p.

Kazakhstan-focused oil producer Max Petroleum said it would refinance its debt through a new $90m credit facility and its shares spurted up 0.15p to 4.2p.

AIM-listed jeweller to the stars Theo Fennell glistened up 0.25p to 11.75p after it said deputy chairman Alasdair Hadden-Paton will become finance director, replacing Gavin Saunders who is leaving. Its potential purchaser, EME Capital, has until the end of the week to make a formal offer for the business.