A strong performance from Vodafone, London's fourth biggest stock, helped the FTSE 100 reclaim the 5,700 level yesterday and close at a four-and-a-half year high. The mobile phone group gained 4.5p to 132.5p excited by comments made by the boss of its American joint venture partner, Verizon Communications.
Speaking as the $8.6bn (£4.8bn) acquisition of MCI was completed, Ivan Seidenberg boldly stated that Verizon's intention was to be the market leader in fixed and wireless telephony as well as consumer broadband. London interpreted those comments as a sign that Mr Seidenberg is preparing an offer for Vodafone's 45% stake in Verizon Wireless. A sale would be warmly received in the City as long as boss Arun Sarin returned the bulk of the proceeds to shareholders rather than using the money to make an acquisition.
Vodafone's rise, coupled with weak US job figures that raised hopes the Federal Reserve might not increase interest rates again, helped the FTSE 100 close 40.6 points higher at 5,731.8. Over the holiday-shortened week the blue chip index gained 113 points. Elsewhere, the FTSE 250 rose 17.2 points to 8,915.5, while the FTSE Small Cap index added 7.7 points at 3,374.0.
ITV was the biggest blue chip riser, advancing 4.75p to 119.25p as rumours of predatory interest from BT, up 5.25p to 223p, intensified. Market professionals were sceptical. They note that ITV's recent strong run - the shares are up 5.7% this week - has coincided with the expiry of its convertible shares and therefore the unwinding of related hedging positions.
BAE Systems, Europe's biggest defence company, was the day's other high-flier. Its shares rose 15p to 408.5p after UBS set a bullish 500p target price citing the impact on earnings of BAE's recent Eurofighter deal with Saudi Arabia.
Compass Group gained 4.25p to 229.25p despite suggestions that Thursday's seller of 31m shares was Brandes. The US value investor owned 6% of Compass at the end of December.
Cable & Wireless firmed 0.5p to 128.5p on rumours that it will receive a bid from a venture capital group before its January 24 trading update. A private equity bid for C&W is not as implausible as it might sound. US investment bank Morgan Stanley recently screened every stock in the FTSE All-Share index using a number of the metrics employed by the venture capitalists and C&W was one of the most attractive alongside St Ives, off 3.5p to 313p, TT Electronics, up 7p to 155p, DS Smith, 2.5p higher at 168.25p, and GKN, 0.75p better at 288.5p.
On the downside, Kazakhmys, the Kazakh copper company which joined the FTSE 100 last month, slipped 15p to 775p after Citigroup slapped a "sell" rating on the stock. With cost pressures rising in Kazakhstan and concerns building that the copper price has peaked, Citigroup reckons Kazakhmys should not trade on anything higher than 10 times prospective earnings, or 700p, its target price.
Property group Minerva was the FTSE 250's top performer as stake building rumours intensified. The belief in the Square Mile is that a far eastern investor amassed a near 3% stake before Christmas and was in the market yesterday adding to that holding.
Minerva is one of the cheapest stocks in the property sector. Its shares trade at a big discount to its stated net asset value of 345p. Moreover, it has the lowest gearing of any company in the FTSE 250 real estate index and has cash reserves totalling £200m, around half its market capitalisation. The shares rose 10.25p to 277.75p.
Whitbread, the Costa Coffee to Premier Travel Inn leisure group, gained 18p to 968p excited by reports that Permira, the private equity group, is considering selling Travelodge for £1.1bn. Based on that figure, Premier Travel Inn is worthmore than £2.1bn, around £400m more than most valuations from City analysts.
Defence contractor Chemring Group topped the small cap leaderboard with a rise of 118p to 875p. That gain came as the City had its first chance to react to Thursday's after-hours news that the US army has ordered an extra $150m (£85m) worth of its anti-missile decoys.
Eircom Group, the Irish telecoms group, was in demand as rumours of a bid from a private equity group did the rounds. Swisscom was forced to abandon a bid for Eircom last year following pressure from the Swiss government. Traders note that Babcock & Brown, the Australian investment fund, picked up a 10.8% holding in Eircom in October. The shares gained 0.03 cents to €2.05.
Elsewhere in the telecoms sector, Thus Group firmed 0.25p to 15.5p amid talk that it could be a takeover target for BSkyB, 8.5p stronger at 514.5p, which recently acquired broadband internet company Easynet.
IT group Morse gained 5p to 102p amid talk that it is set to announce the launch of its mobile ATM venture with the Link. Futura Medical firmed 1.5p to 63.5p on rumours it could be close to unveiling a tie-up with GlaxoSmithKline, off 18p at 1478p, for its non-prescription treatment for erectile dysfunction. Teesland, the property and fund management group, gained 8p to 100p on hopes of an update on takeover talks.
Unilever hot
Hot money was chasing Anglo-Dutch consumer goods company Unilever following some unusual activity in the derivatives market. Early in the session one punter picked up 1,050 lots of the March 650p call options. These entitle the owner to purchase just over 1m Unilever shares at 650p each in three months' time. City dealers said the options trade had helped fuel takeover speculation, which first surfaced earlier in the week. Analysts were nevertheless quick to rubbish suggestions that Kraft Foods, the world's biggest food company, might make a move for Unilever, noting the recent weak performance of Kraft shares and the fact that the company is in the midst of major restructuring. Nevertheless, Unilever closed 4p higher at 577.5p after 12m shares changed hands.