Shares in Argos owner Home Retail Group took off today amid speculation of a potential bid from supermarket chain Asda.
Home Retail, which also owns Homebase, jumped more than 5% after it was identified as a possible target in Asda’s expansion plans.
The supermarket, which is owned by US food giant Wal-Mart, is reportedly weighing a large acquisition as it looks to close the gap between rival Tesco and boost its share of the general merchandise market.
Asda is understood to have considered a number of other firms both on the high street and in out-of-town shopping parks, including Home Retail and budget clothing chain New Look.
The firm said it would not comment on speculation.
Joshua Raymond, market strategist at City Index said: “The retailers have been in demand after weekend reports that Asda could bid for Home Retail Group.
“The news has lifted Home Retail’s shares straight to the top of the FTSE 100 leader board.”
He said the entire retail sector was in vogue with investors as an upgrade to Sainsbury’s from Merrill Lynch also raised sentiment.
Today’s rise gave Home Retail a market value of more than £2.5bn.
Sainsbury’s was around 3% higher at one point today, while Marks & Spencer gained almost 1% and Tesco and B&Q owner Kingfisher lifted half a percent.
According to the Mail on Sunday yesterday, Asda has received the green light from its US parent to go ahead with a takeover.
The report said the grocer would dramatically increase its size under the plans and is therefore likely to attract regulatory attention.
Recent figures show the supermarket has a total of 371 stores, 23 depots and 24 Asda Living outlets across the UK.
Home Retail, meanwhile, has 744 Argos stores and 349 Homebase outlets.
The group has said it expects annual profits of around £290m – exceeding market hopes.
Recent industry figures from Kantar Worldpanel showed Asda was the only one of the “big four” to see a decline in its share of the UK grocery market in the 12 weeks to March 21.
The supermarket slipped from 17.3% to 17.1% in the period, partly as a result of strong comparatives a year earlier, when its sales were growing at more than 8%.
Meanwhile Tesco moved higher in the same period as it continued to benefit from aggressive Clubcard loyalty bonuses – up from a share of 30.1% to 30.3%.
Asda has vowed to accelerate openings of smaller shops this year.