Barclays' proposed bid for Dutch group ABN Amro has lit up the whole banking sector, and today ABN did its bit to keep things moving.
In a research note ABN's analysts - while pointing out they could no longer give forward looking comments on Barclays for obvious reasons - put buy recommendations on a number of the major UK banks. They said earnings growth should accelerate, and believed there was little evidence that the recent problems in the US sub-prime mortgage market were spilling over into other credit markets.
The ABN Amro analysts particularly like the look of Royal Bank of Scotland and Lloyds. "Although RBS offers a slightly lower earnings growth outlook, we believe management's clear repositioning over the past 18 months to deal with the primary reasons, as we see them, for the group's low earnings multiple should drive a relative re-rating," they said.
It upgraded Lloyds to buy from hold, partly on the rising probability of a dividend increase.
Barclays added 26.5p to 739p awaiting more news on any deal with ABN, with some suggestions that arbitrageurs were hedging their bets by selling ABN shares and buying Barclays. Many believe Barclays has made itself a bid target if its move for ABN falls through - and with a host of other banks as possible rival bidders for the Dutch, it is by no means a done deal.
Yesterday another Dutch bank ING said it was looking at its options about how it would take part in the present consolidation in the sector. Some analysts said if ING did not go for ABN, Lloyds would be an obvious target
Lloyds added 6.5p to 565.5p, while RBS rose 29p to £20.58.
Elsewhere HSBC was 17p better at 898p as ABN moved from sell to hold although it added: "It remains our least preferred story."
The financial sector also benefited from the signs coming out of America that interest rates there may be on the way down. After the UK market closed yesterday, the US Federal Reserve held rates at 5.25% and changed the language used in the accompanying statement. Those versed in reading the runes of Fed pronouncements said this left the US authorities room to lower rates if needed.
By the time London closed, the US market had continued its overnight gains, so the FTSE 100 index ended 61.2 points higher at 6318.0 while the FTSE 250 added 95.4 points to 11,708.1.
The biggest riser in the leading index was fashion chain Next, up 139p to £22.35 as it beat forecasts with a 6.5% rise in annual profits. Panmure Gordon upgraded from hold to buy, while Bridgewell was also positive on the figures.
It also benefited from UK retail sales figures showing a big rise in clothing sales. The overall figures showed high street sales up 1.4% in February, the largest monthly increase since January 2005.
Richard Snook, economist at the Centre for Economic and Business Research, said: "The magnitude of the recovery exceeds expectations of a 0.6% increase. The combination of continued growth in consumer demand and the persistence of price pressures adds to the pressure on the Bank of England to increase interest rates further. Consumer price inflation figures released on Tuesday beat expectations by rising to 2.8%. We project that there will be one further interest rate rise before the cycle peaks, and that it will most likely occur in May."
But the figures also showed food sales were flat month on month, leaving Tesco down 2p to 440.75p and J Sainsbury unchanged at 550p.
Miners were wanted as base metals rose in early trading, partly due to dollar weakness after the hints of lower US interest rates.
Antofagasta added 19.5p to 518.25p, Lonmin was lifted 75p to £32.54 and Rio Tinto rose 60p to £28.65.
Oil rose around $1 a barrel on concerns that a fall in US stocks could lead to supply problems ahead of the summer driving season. BP added 12p to 528.5p, while Royal Dutch Shell rose 22p to £16.582. BG was also in demand, up 23.5p to 719p.
Companies with substantial US businesses moved higher on hopes that the American economy was not in too bad a shape after all, with building materials group Wolseley up 16p to £12.67 and hedge fund manager Man up 9.5p to 555.5p.
There was more fallout from yesterday's budget. Rank fell another 16.75p to 208.25p after the changes to casino taxation. Evolution described this as "another poor hand for Rank" and reduced its recommendation from add to sell. It said the changes have wiped out all Rank's forecast casino growth, and also reduced its attractiveness as a buy-out target.
Pharmaceuticals groups were lower initially after JP Morgan downgraded both AstraZeneca and GlaxoSmithKline. It said the UK companies were overvalued compared with their Swiss rivals such as Novartis and Roche. Astra lost 35p before recovering to £28.38, up 2p, while Glaxo fell 11p before closing up 1p to £14.14.
A slightly ambivalent note from Citigroup on mobile phone giant Vodafone saw its shares edge up 0.5p to 143.5.
"Vodafone looks undemandingly priced here, and fair value of 155p can be justified," said Citigroup. "But with earnings falling, and 70% of the business mature, we would need very strong emerging market performance indeed to see the gap close."
Among the mid-caps, office rental group Regus rose 7p to 143.25p as Goldman Sachs raised its price target from 141p to 195p in the wake of this week's results. "We believe the serviced office sector offers a long-term growth opportunity and that Regus, as the clear market leader in this industry, has first mover advantage in terms of scale, brand and offering," said Goldman. "We believe this will allow it to produce significant earnings growth and cashflow for the forseeable future."
Lower down the market department store group Beale lost 4p to 67.5p after it warned at its annual meeting that its results were likely to fall well short of expectations in the year to November 2007, following disappointing trading during the autumn and winter season. Seymour Pierce advised clients to sell. "This is no real surprise to us," said Seymour's Richard Ratner. "The company has a record of two steps forward, three backwards, despite the efforts of the chief executive.
"Going nowhere without a bid - and no sign of one at present."
Educational supplier RM lost 10.5p to 212.5p. The company has been chosen as preferred bidder to supply hardware and software to schools under London's computers for pupils programme. But Altium said the contract was relatively low margin, and cut its recommendation from reduce to sell.
On Aim Medsea Estates, the Spanish-based estate agency group, was 3p better at 16.5p after it announced record annual profits of £2.9m, and said forward bookings were up on last year.