After a quiet start to trading yesterday, things sprung into life with talk of a takeover bid for the pharmaceuticals giant AstraZeneca. The shares jumped 74p to a six-week high of £30.16, making it the biggest riser in the FTSE 100 index, as rumours of a bid from the likes of GlaxoSmithKline or Novartis did the rounds.
The company refused to comment, although it has repeatedly said it has a strong independent future. Analysts said the suggestions were spurious and may have been prompted by Bayer and Merck battling over the rival pharmaceutical firm Schering. Around 17.5m AstraZeneca shares were traded, similar to the usual volume, they said.
Meanwhile, defence group BAE Systems was on the slide after Airbus, in which it owns a 20% stake, slipped out the unexpected news on Tuesday night that deliveries of its A380 superjumbo would be delayed by six to seven months because of production problems. That amounted, in effect, to a profits warning, and shares in EADS, which owns the majority of Airbus, slumped 25%. Investors baled out of BAE, too, and it fell 3.75p to 345p, with a hefty 56m shares traded.
The news from EADS also knocked back other aerospace companies, including the aero-engine maker Rolls-Royce, which fell 4p to 381p despite saying there would be little earnings impact from the A380 delays, and Smiths Industries, down 8p to 831p.
By the close, the FTSE 100 fell 12.8 points to 5,506.8 - off the worst levels of the day as the AstraZeneca takeover speculation provided some support and the US market recovered after a set of key US inflation figures.
There had been a lot of nervousness ahead of these, but they were worse than expected and, in traditional fashion, investors chose to sell on the rumour and buy on the fact. There had been so much uncertainty about how far the US Federal Reserve would raise rates, and so much confusion about pronouncements from its members, that a clear signal of dearer money was greeted with some relief. Analysts said there was no doubt a rate rise was on the cards at the end of this month, and the Dow Jones Industrial Average reversed the losses of recent days and climbed around 50 points by the time London closed.
Among the other climbers, Lloyds TSB added 12p to 515p, as Morgan Stanley upgraded its rating and put a price target of 611p on the shares. It said Lloyds could be the best story in British banks in 2006, as the new management team starts to revitalise the business. The trading statement on June 19 could be a catalyst for a reassessment of the company, said Morgan Stanley analysts.
Supermarket group J Sainsbury benefited from some switching out of Tesco, which turned in somewhat disappointing figures, and added 7.75p to 318.75p. Tesco fell 2.5p to 327.25p.
AB Ports was among the biggest risers in the FTSE 250, up 49.5p to 826.5p as a bid battle between Goldman Sachs and a group including Australia's Macquarie Bank and 3i got under way. Forth Ports rose 30p to £17.11 as dealers suggested it was now also in the takeover spotlight.
Going the other way was the telecoms testing group Spirent Communications, which fell 6p to 37.5p after it said first-half profits at its performance-analysis business would be below expectations. The gas and oil company Expro International lost 78.5p to 636p. The company is raising £127m in a rights issue at 500p to partially fund the acquisition of US Power Well Services.
The long-awaited takeover offer for the housebuilder Crest Nicholson could finally emerge. The shares climbed 17.5p to 505p on talk that its rival Bovis was building a stake. Property group Heron International owns 23.3%, and is believed by many dealers to be a willing seller.
Technology company Autonomy dipped 3.5p to 334p despite news that the chief executive, Mike Lynch, had bought 7,500 shares at 336.5p each. The chief operating officer, Andrew Kanter, paid 335.5p each for 10,343 shares.
Mr Lynch was also backing up his faith in the company with words, telling Radio 4's Today programme yesterday that Autonomy was a world leader in its field.
He was responding to comments from the shadow chancellor, George Osborne, that the UK had no world-class internet companies.
Analysts at Shore Capital told clients the shares should get a lift from an investor presentation later this week and second-quarter figures next month. Shore put a buy recommendation on the shares with a 490p target.
Among the smaller fry, social housing group Mears lost 4p to 254.75p, despite announcing the acquisition of the Scottish housing group Laidlaw Scott, but the Asia-focused merchant bank London Asia Capital was up 1.5p to 20.25p as it announced a 167% rise in profits.
Television group Tinopolis climbed 3.25p to 31.5p. It announced operating profits 16% higher and sold Hawk-Eye, the ball-tracking technology system, to Wisden, the owner of the cricket almanac.