Northern Rock benefited from talk that both JC Flowers and Cerberus were still interested in buying the beleaguered mortgage bank, with Flowers said to have raise £15bn towards an offer. Northern Rock rose 16.2p to 151.8p while rival Alliance & Leicester added 58p to 880p.
Now the likes of UBS, Deutsche Bank and Citigroup have started to quantify the effect of the US sub-prime problem, traders are hoping the worst might be over and moved back into the financial sector. Barclays was 19p better at 640p ahead of the final act in the interminable battle to buy Dutch group ABN Amro. Royal Bank of Scotland, whose rival consortium looks the likely winner of the ABN auction, climbed 15.5p to 554p.
HSBC added 24p to 935.5p, following the lead of its Hong Kong-listed shares which moved higher overnight. Lloyds TSB moved 9p to 565p on vague talk of Qatari stakebuilding.
The sector was also lifted by the - unlikely but not impossible - chance of a UK interest rate cut tomorrow.
Not everyone was positive on Northern Rock, however. Collins Stewart said: "We see 190p as the ceiling for bids and, with most other bidders reportedly having dropped out, we doubt that Flowers would bid as high as this level. We would continue to sell into any strength and again caution that this is a very high-risk situation."
Still with financials, insurer Old Mutual rose 7.6p to 168p as it announced a £350m share buyback programme - equivalent to 4% of its share capital - funded from its own resources.
Shore Capital issued a buy note, saying: "We view this announcement positively for a number of reasons. It highlights the undervaluation of the shares, which are currently trading at a 9% discount to our net asset value forecast for 2008. It implies that cash is now emerging from the various operating units – something which, in our view, the group has been unable to convince the market of.
"It implies that the group is comfortable with its potential exposure to the issues which may arise from the credit crunch and US sub-prime mortgages."
Royal & Sun Alliance, though, was heading in the opposite direction. It fell 2.7p to 153.1p as JP Morgan downgraded from overweight to neutral.
"Short term we expect merger speculation to influence the share price," said the bank. "Our view remains that Royal & Sun could be an attractive target, but at the current price the company remains at a significant premium to our adjusted book value of 140p. We believe at the current share price level, competitors may prefer to organically grow their business, where possible, as buying Royal & Sun would involve large amounts of goodwill."
Elsewhere, retailers slipped back as Bhs owner Sir Philip Green cautioned on the outlook for shop sales. So B&Q owner Kingfisher - lifted yesterday by an upgrade from HSBC - fell 2.1p to 194p, not helped by it going ex-dividend.
Dresdner Kleinwort issued a hold recommendation on Kingfisher. It said: "We resume coverage of Kingfisher with a 200p target price, which is where the stock is after the 10% relief rally . On balance we believe that the longer term merits will continue to be overshadowed by short term risks. The potential profit shortfall that may arise in a UK consumption downturn (for instance a 2% cut in our B&Q like-for-like assumption for next year would lead to a 7% pre-tax profit downgrade at group level) remains a powerful offset to longer term recovery potential at current prices."
Rival Home Retail Group lost 9.25p to 398.25p as Dresdner downgraded from buy to hold.
"The outlook for UK DIY spending, a category that exhibits above average sales cyclicality is uncertain, and the all leasehold Homebase profit and loss account is highly geared," said Dresdner. "Together with DIY returns suffering structural over-capacity (i.e. too much space), B&Q is also ramping up investment in its warehouse format as part of an explicitly sales led margin restoration strategy."
Oil companies were also under the cosh after the recent losses in the crude price, despite a move back above $80 a barrel this morning.
BP dropped 2.5p to 557p on talk the company was about to issue a profits warning, or had at the very least been briefing analysts to expect weaker-than-forecast third quarter earnings. This would be a severe embarrassment for new chief executive Tony Hayward, who told staff last month that the third quarter would be "dreadful", which the company denied meant profits would not meet expectations. BP maintained this morning that it had not said anything that was not already in the public domain.
Royal Dutch Shell was also lower, down 25p to £19.55.
There was some switching out of telecoms stocks, which hit Cable & Wireless, down 3.1p to 185.2p, and Carphone Warehouse, 5.25p lower at 340.75p.
Vodafone fell 4.4p to 171.1p after results from the mobile phone group's New Zealand business, while showing increased sales and profits, also felt the effects of cutting mobile termination rates ahead of expected government regulation of fees. Analysts also said the New Zealand company may need its parent company's financial support to mount an attack on the fixed line market.
But British Airways climbed 15.75p to 424.75p despite a slight dip in September traffic figures.
Engineers were generally strong today after Cookson's bid for Foseco, with dealers trying to spot the next bid target. Senior, for one, added 5.75p to 126.25p.
As for Cookson, it climbed 35.5p to 830p. Analysts said it would be on the verge of entering the FTSE 100 if the Foseco deal was completed.
Overall the FTSE 100 closed 34.8 points higher at 6535.2 despite an early dip on Wall Street. Traders urged caution however. Apart from the UK interest rate decision tomorrow, there are US non-farm payroll numbers on Friday. Not to mention the prospect of the pre-budget report early next week immediately followed by the announcement of an election.
Lower down the market, struggling property company Erinaceous edged up 0.5p to 39.75p. US hedge fund Fursa Alternative Strategies - which had been pushing for an extraordinary general meeting to unseat senior directors - has raised its stake to 19%.
Finally Mike Ashley's Sports Direct lost 4.75p to 133.75p as it raised its stake in replica kit supplier Umbro from 12.24% to 13.14%.