Merger prospects encourage FTSE rise

The prospect of consolidation in the banking sector and good news from fashion retailer Next helped the London market close up a comfortable 61.2 points today.

London's FTSE 100 Index followed the lead of gains made on the US markets as the Federal Reserve decided to leave US rates on hold.

The Footsie finished the day up 1% at 6318 despite concerns that strong UK retail sales figures may prompt the Bank of England to raise interest rates again by May.

Fashion retailer Next gave the blue-chip share index a boost as investors cheered a positive set of annual results and news of a solid trading performance in the current financial year.

Next shares closed 7%, or 139p, higher at 2235p after it reported a 4% uplift in recent retail sales and outlined plans to turn around the business, which has struggled in the face of strong competition.

Meanwhile strong copper prices gave the mining sector a fillip, with Antofagasta up 19.5p at 518.25p, Lonmin ahead 75p at 3254p and Rio Tinto up 60p at 2865p.

Investors also continued to be excited by potential merger and acquisition activity in the banking sector. Barclays rose another 26.5p to 739p ahead of its possible tie-up with Dutch rival ABN Amro, while Royal Bank of Scotland rose 29p to 2058p as it appeared the next likely participant in any future deal-making.

Standard Life lost gains made earlier in the day despite better-than-expected profits performance and plans for cost savings worth £100m (€147.37m) a year by 2009 being unveiled.

The life and pensions group's shares closed the day 1.75p down at 305.25p, a 0.6% fall, as some analysts raised concerns that the company had fallen short of expectations on new business profit and that charges for lapses were at the high end of forecasts.

But it was Imperial Tobacco that led the fallers' board, slipping back 33p to 2215p even though reports emerged that three major Altadis shareholders had instructed the group to accept a revised offer from Imperial if no other bidders come forward in the near future.

At the same time, takeover developments at Cadbury Schweppes failed to provide any uplift. Reports that suggested the group may sell its drinks business following interest in the division did not impress traders as the stock drifted 5.5p to 639.5p.

In the second tier, Mecca bingo operator Rank continued to slide as investors digested the implications of tax increases in the Budget yesterday. The stock fell 16.75p to 208.25p, a drop of 7% after Rank reacted with "dismay" at the news, estimating the casino gaming duty changes would cost it about £8m (€11.8m) a year.

Waterstone's owner HMV fell 2% as sentiment towards the sector weakened after the publication of disappointing figures from Borders. The stock was down 2.25p at 114.75p.

The biggest Footsie risers were Next up 139p at 2235p, Antofagasta ahead 19.5p at 518.25p, Barclays up 26.5p at 739p and BG Group up 23.5p at 719p.

The biggest Footsie fallers were Imperial Tobacco off 33p at 2215p, ITV down 1p at 107.7p, Cadbury Schweppes down 5.5p to 639.5p and British American Tobacco down 13p at 1591p.