News of a possible multi-billion pound bid for mining giant Rio Tinto helped offset steep early session losses on the London market today.
Consolidation hopes in the mining sector after BHP Billiton revealed its interest in a merger with Anglo-Australian rival Rio lent some much needed support to the benchmark index.
The FTSE 100 Index closed down 3.2 points at 6381.9 after clawing its way back from a dire first hour of trading, which saw it lose more than 80 points at one stage.
Rio rejected BHP’s approach, but the talk of consolidation in a market starved of merger and acquisition activity provided a lift across the heavily-weighted mining sector.
The Bank of England’s decision to keep interest rates on hold was also welcomed by traders, particularly as a quarter point cut to 5.5% might have signalled that economic conditions were worse than the City had feared.
But the potential for further gains was hampered by fresh fears over America’s economy after comments from US Federal Reserve chairman Ben Bernanke warned the country’s economy would slow sharply before the end of the year.
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 last night and Asian markets also lower.
Barclays continued its recent decline, falling 27.25p to 486.25p, while Royal Bank of Scotland dipped 23p to 415p as traders continued to speculate about the prospect of write-downs from the banking giants.
The biggest upward moves unsurprisingly came from the mining sector, as traders jumped on BHP Billiton’s admission that it had approached Rio Tinto about a possible tie-up. Rio rejected the offer but shares still jumped 22% or 946p to 5296p, while others in the sector were lifted by consolidation hopes.
Anglo American cheered 474p to 3645p, Xstrata gained 348p to 3573p and Vedanta Resources added 129p to 2205p.
Rio’s suitor BHP dropped however as investors digested news of its potential offer for the group amid trader talk that BHP will have to significantly up its price to secure Rio.
Elsewhere, BT shares fell 4%, or 13.25p to 301.75p, after some elements 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 20p to 630p, while Punch Taverns lifted 25.5p to 928.5p in the wake of healthy annual results.
In the FTSE 250, UK investment bank Close Brothers rocketed by 21%, or 156.5p to 916.5p after news it had been approach by boutique advisory firm Cenkos Securities and Iceland’s Landsbanki, although the £1.4 billion possible offer was rejected.
The biggest Footsie risers were Rio Tinto ahead 946p at 5296p, Anglo American up 474p at 3645p, Xstrata up 348p at 3573p and BG Group up 88p at 989p.
The biggest Footsie fallers were BHP Billiton down 100p at 1656p, Barclays off 27.25p at 486.25p, Royal Bank of Scotland down 23p at 415p and Invesco down 33.5p at 650.5p.