A SURPRISING opening rally by Wall Street, plus the resurgence of bid talk, saw British stocks move ahead strongly in the last hour of trading yesterday.
By the close, a late flurry of buying interest drove the FT-SE 100 index up 16.0 to 3,978.1.
The late buying demand tended to be concentrated in the leaders, however, leaving the second liners and smaller stocks languishing.
The FT-SE 250 index settled only 0.1 higher at 4,400.3, while the FT-SE SmallCap was down 3.1 at 2,160.4.
Wall Street's strong early showing came in the wake of some weak housing starts data from the US. On Monday, Wall Street's run of eight straight gains to record highs had been brought to a halt, with the Dow Jones Industrial Average closing fractionally lower.
But the Dow was in super form yesterday, racing up over 40 points shortly after the opening, and injecting renewed strength into London.
Although London was tentative during the morning, sentiment was never bearish, with dealers pointing to Monday's excellent public sector debt repayment news, as helping the buyers.
Gilts made further progress during the day, closing around the session high, sustained by the bullish PSDR and a firm showing by global bonds.
The takeover stories that began to circulate freely during the afternoon centred on Zeneca, Cookson and British Gas, all recent bid favourites.
The bid picture also included London Electricity, whose shares have been keenly supported over the past few days following stories that Entergy, a US group, was about to pounce. Entergy said, however, that it was not involved in ongoing discussions with "English electricity companies Zeneca shares moved towards the top of the FT-SE 100 performance table as the speculation increased, while British Gas made further progress in exceptionally heavy two-way trading despite general scepticism about a bid move by Shell. Orange, the cellular phones group, was the best Footsie performer amid suggestions that BZW, a long-term bear, had turned buyer, saying the stock was oversold.
While the speculators were pinning their hopes on more takeovers, there were other serious shocks for the market.
No less than four profit warnings appeared among the smaller stocks, affecting Country Casual, the retailer; Porvair, the shoe manufacturer; Nelson Hurst, the insurance broker and Widney, the engineering group.
Another talking point was the sprinkling of rights issues, of which the £173 million sterling cash call from Allied Colloids was the most significant.
The day's results news encouraged some of the best individual Footsie performances, notably from BOC, Vodafone and EMI.
Turnover at the 6 p.m. count was a slightly disappointing 661.1 million shares, with British Gas again accounting for almost 5 per cent of the total. Customer turnover on Monday was a lowly £985.8 million.
