Mining stocks came to the rescue of the London market today after BHP Billiton confirmed its interest in a tie-up with blue-chip rival Rio Tinto.
The potential deal activity caused mining shares to rally and meant the FTSE 100 turned early morning losses into a gain of 25.1 points at 6410.2 by mid-morning.
Banking shares remained under pressure after Morgan Stanley became the latest investment bank to warn of major write-downs following the sub-prime mortgage crisis in the US. The update fuelled market jitters worldwide, with the Dow Jones Industrial Average down more than 300 points and Asian markets also lower.
Barclays continued its recent decline, falling 22.25p to 491.25p, while Royal Bank of Scotland dipped 19p to 419p as traders continued to speculate about the prospect of write-downs from the banking giants.
Meanwhile, shares in crisis-hit mortgage lender Northern Rock slumped by 12% at one point amid reports that worried savers have withdrawn more than £10bn (€14.3bn) from the bank.
Documents sent to would-be buyers of the stricken firm say customers have taken out £10.5bn (€15bn) since the bank was forced to seek emergency funding from the Bank of England in September, according to the Daily Telegraph. The stock later recovered some ground to stand 1% lower, or 2p at 150p.
Starved of merger and acquisition activity in recent weeks, traders jumped on BHP Billiton’s admission that it had approached Rio Tinto about a possible £83bn (€119bn) tie-up. Rio rejected the offer but shares jumped 18% or 788p to 5138p, while others in the sector were lifted by consolidation hopes.
Lonmin added 181p to 3442p, Antofagasta cheered 39.5p to 820p and Xstrata gained 142p to 3372p.
Elsewhere, BT shares fell 4%, or 11.5p to 303.5p, after some parts of the company’s half-year results presentation disappointed analysts.
Pub chains moved in the opposite direction, amid speculation that Irish tycoons JP McManus and John Magnier have been stake-building in All Bar One owner Mitchells & Butlers. Shares rose 31.5p to 641.5p, while Punch Taverns lifted 37.5p to 940.5p in the wake of half-year results.