Market Report: New suitor for Bodycote is waiting in the wings

The engineering group Bodycote was a principal focus of the rumour mill yesterday, with speculation that an unnamed suitor was preparing a bid.

The stock rose 6.67 per cent to 272p as talk of a bid in the region of 330p per share did the rounds.

Bodycote repelled a £1.1bn takeover assault from Swiss rival Sulzer in April. The bad-tempered saga culminated in the Competition Commission issuing a put up or shut up which forced Sulzer to walk away for at least six months.

One analyst said that while the latest rumours are feasible, it is unsurprising they have resurfaced this month. "It is nearly the end of that six-month time frame, and Bodycote's share price is still way under Sulzer's bid. Yesterday's news of Cookson's consolidation moves also brought the sector into focus," he said.

The brokers were firmly behind Cookson Group's proposed takeover of Foseco, which was revealed on Tuesday. Shares in the engineer rose 4.47 per cent to 830p, as most agreed that a rival bidder was unlikely to emerge. Evolution Securities said: "It is a deal to be excited about both strategically and financially."

Financial stocks led the FTSE 100 up as it closed 34.8 points higher at 6535.2. Northern Rock topped the leaderboard, storming up 11.95 per cent to 151.8p after news private equity group JC Flowers had secured £15bn to fund its potential takeover. Collins Stewart said the ceiling for a bid would be 190p, "and with most other bidders reportedly having dropped out, we doubt that Flowers would bid as high as this". It added that investors should sell into any strength. Elsewhere in the sector, Royal Bank of Scotland was up 15.5p to 554p as looks to sell its hotel properties. For the third time. Another strong performer was Old Mutual, which plans a £350m share buyback using internal resources. The group closed among the top performers, 4.74 per cent firmer at 168p.

While the US opened down, one stock, Saks, was in focus. The group has been soaring of late, and was up a further 3 per cent in the morning on strong takeover rumours. The talk is that Icelandic investor Baugur, which owns House of Fraser, is preparing an offer for the glitzy department store, which will be tabled by the end of this month.

One trader said: "It was very quiet today, people are just hoping the fourth quarter will be better, but after some of the investment banks have started to feel the pinch, they are not holding their breath."

Among the worst performer of the day was Home Retail Group, after Dresdner Kleinwort downgraded the stock to "hold". It also slashed the target price from 470p to 415p, sending the shares spiralling 2.76 per cent to 398.25p.

It was a bad day for BP as the markets buzzed with rumours of a third-quarter profits warning for the oil major. This intensified as blue-blooded broker Cazenove reduced its estimates for the quarter by 9 per cent. The stock fell 0.45 per cent to close at 557p.

On the mid tier, Marston's was back in focus, rising 7.68 per cent to 364.75p as investors saw a buying opportunity before its trading update today. The market wasn't so bullish about Michael Page International, which fell 8.5p as it prepares an update of its own. It rallied at the end of the day to close 0.5p down at 437p.

Another mid tier faller was Dana Petroleum, after powerhouse US broker Goldman Sachs removed it from the "conviction buy" list. The broker downgraded Dana saying it had outperformed the oil and gas sector over the past month. It added there was more upside elsewhere in the sector, sending the shares down 2.99 per cent at 1,137p.

Outside the penny stocks, top small-cap riser was Sanatana Diamonds after a find in the Northwest Territories. The Canadian group rose 28.13 per cent to 20.5p. The kimberlite discovery comes as welcome news for a stock that has plumbed the depths, falling from its peak of 90p in 2006 to 16p last week.

Human tissue provider Asterand was another riser after it won a contract from the US government to assess the condition of the Department of Defense Armed Forces Institute of Pathology Tissue Repository. The deal sent Asterand up 8.7 per cent to 6.25p.

Financial adviser Lighthouse Group was scratching its head over yesterday's 13 per cent slump in its share price. A statement released today saying it could see no reason for the movement as "results for the year are expected to be in line with expectations", helped the stock rally 8.7 per cent to 25p.

Among the worst small-cap performers was Redknee Solutions, the IT group for mobile operators. The group admitted it would be "well below market expectations" after issues with three contracts and the impact of the Canadian dollar against its US counterpart. It closed down 36.36 per cent at 38.5p.