Market Report: Hopes of growth stoke interest in Imagination

Imagination Technologies continued to trade higher as the bulls latched on to the prospect of fatter royalty cheques last night.

The stock was marked up by 8.5p to 309.5p, equating to a gain of nearly 35 per cent since the beginning of the month, with the latest move up being pinned on a decidedly bullish analysis from Royal Bank of Scotland. Imagination, which is due to issue its full-year results tomorrow, is a leading supplier of advanced 3D graphics technology. Chip makers use its intellectual property to power mobile devices, and while advanced graphics already feature in 66 per cent of smartphones, growth remains at an early stage, "with future adoption likely in feature phones, mobile computing, digital televisions and set-top boxes".

This, coupled with the fact that Imagination counts the likes of Apple, Intel and Samsung as its customers, promises to bring in higher royalties. That in turn should drive revenues and margins, RBS said, initiating coverage with a "buy" view. Speculators can also take heart, as Imagination may well end up as a takeover target. "Intel and Apple have already take 15 per cent and 9 per cent stakes in the company ... to give themselves more influence on any potential takeover decision," the broker explained. "ARM could also target IMG to bolster its graphics division, while QCOM could become interested in IMG as the market moves to multi-core graphics."

ARM itself failed to make much headway, closing broadly unchanged at 291p, up 0.8p, after Investec switched its view to "hold" from "buy", citing valuation grounds. "The stock price is driven by two main forces: company-specific news and industry-wide dynamics," the broker said, keeping its target for the stock unchanged at 290p. "While we believe company specifics will remain positive, we are concerned that the industry outlook may be reaching a short-term peak."

overall, the FTSE 100 rose by 48.27 points to 5,299.11, while the FTSE 250 ended 39.37points higher at 9,992.07. Miners dominated the upside as China's pledge to allow greater flexibility in the yuan exchange rate boosted the mood across the commodity markets.

Traders said a stronger yuan, while potentially hitting Chinese exporters as the dollar weakens and drives up the cost of dollar-denominated commodities, would help to lift demand and consumption inside the Chinese economy, and thus underpin the appetite for metals and oil.

Metals prices swiftly firmed up, driving sentiment around the likes of Vedanta Resources, up 6 per cent or 140p at 2,471p, Xstrata, up nearly 5 per cent or 49p at 1,076p, Lonmin, up 41p at 1,709p, and Kazakhmys, which rose to 1,235p, up 41p. Oil prices were also higher, lifting the mood around Cairn Energy, which gained 9.3p to 444.9p, and Tullow Oil, which was 26p better off at 1,176p.

BP had no such luck, shedding 7.95p to 349.5p amid concerns about earlier criticism from Anadarko Petroleum, its partner in the leaking Gulf of Mexico oil well. For its part, BP, which revealed that clean-up costs had escalated to around $2bn so far, said it strongly disagreed with Anadarko Petroleum's views.

India's Essar Energy, making its debut on the FTSE 100, rose by 2.45p to 468.2p. African Barrick Gold, the African arm of the world's largest gold miner, was less successful on its first day on the blue-chip index, easing by 4p to 651p as investors banked profits from what has been a strong run since late May. Of the other FTSE 100-listed precious metals producers, Randgold Resources was 75p higher at 6,505, while the silver specialist Fresnillo rose by 26p to 1,086p.

Further afield, the housebuilders were in focus ahead of the Chancellor's emergency Budget statement this afternoon. The sector has been under pressure amid worries about how the coalition's measures might impact the housing market, but yesterday Citigroup said the Chancellor was "unlikely to directly target the industry". "While an increase in capital gains tax may have a modest knock-on effect on the property market, we do not see VAT on new housing being imposed," the broker said, supporting the likes of Bellway, up 2.5p at 641.5p, and Bovis Homes, up 7.4p at 359.7p. Barratt Developments was less successful, easing by 3.3p to 103.8p.

Elsewhere, the oil prospector Dana Petroleum rose by 56p to 1,211p amid a renewal of bid rumours, while Brit Insurance was driven up by 19.5p to 944.5p amid chatter that the buyout firm Apollo may be readying a higher offer. Brit, which rejected Apollo's initial 1,000p per share offer earlier this month, was also supported by UBS, which moved its target for the stock to 978p, incorporating a 65 per cent chance of a revised offer.

Goldman Sachs turned positive on the electronic component distributors Electrocomponents and Premier Farnell, though it expressed a relative preference for the latter, citing factors such as its exposure to Asia and the manufacturing recovery in the UK. ECM also benefited from lower leverage and a more supportive valuation, the broker said, boosting the stock by just over 2 per cent or 4.6p to 230.6p. Premier Farnell, on the other hand, was 1.5p down at 240.5p.