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FTSE 100 edges higher in volatile trading while bid talk surrounds Aviva

On yet another stomach-churning day for investors, it was perhaps inevitable that there was a FTSE 100 bid rumour amidst all the volatility.

As global recession fears gripped the markets, and Europe’s debt woes continued, traders heard renewed talk of possible predatory interest in insurance group Aviva. The suggestion was that Zurich Financial Services could be interested, with a bid of up to 440p a share which would value Aviva at £12.5bn. Cynics pointed out this story had done the rounds before, although there was a hefty volume of shares traded. Meanwhile BarCap raised its recommendation on the insurer from underweight to equalweight and its price target from 450p to 480p.

All this did little to help Aviva, however, which closed 5.3p lower at 301.8p, dragged down by its exposure to struggling equity markets.

Downbeat comments from the likes of World Bank president Robert Zoellick, who said the European economy was entering a dangerous period, did not help sentiment, while a surprise move by the Swiss National Bank to effectively devalue the franc against the euro also unsettled investors. Italy faced a confidence vote as it amended its austerity plans amid strikes on the streets, while analysts at RBS warned Greece could default in December. Wall Street fell back as it reopened after the Labor day holiday, with a stronger than expected services sector survey dampening hopes of further quantitative easing from the Federal Reserve.

But after two days of hefty declines the FTSE 100 bucked the falling trend in global markets to register a 54.26 point increase to 5156.84. Joshua Raymond, chief market strategist at City Index said:

European stock indices suffered yet more losses on Tuesday in a very choppy trading session with investors unwilling to hold onto risk for too long as concern over the impact of the political discourse over the European sovereign debt crisis. The FTSE 100 did however outperform broader European trade with commodity stocks helping to keep the UK index from slipping into red territory.

Whitbread led the risers, up 106p to £15.63 after a positive trading statement, with business boosted by its Costa Coffee division.

Betfair, 27p better at 655p, and equipment hire company Ashtead, which added 21.2p to 133.2p, were also lifted by encouraging updates. But Kesa Electricals closed 6.3p lower at 95p and Halfords fell 11.6p to 280.5p after Citigroup reduced its recommendations on both retailers. The bank also cut its earnings estimates for Marks & Spencer, where it is joint broker, by 3% this year and around 5% after that to reflect a weaker consumer demand outlook. Marks slipped 0.6p to 301.8p.

Dixons Retail dipped 0.41p to 10.59p as Nick Bubb at Arden cut his price target from 17p to 12p ahead of Wednesday’s trading update, saying:

We remain nervous, despite the strength of the Elkjop business [in Scandanavia] and the success of the Currys Megastores, as the balance sheet is fragile.

Banks, after an early rally, came under pressure again on worries about proposed changes to their business, US lawsuits and their exposure to sovereign debt. Barclays lost 3.4p to 150.75p while Royal Bank of Scotland dropped 0.61p to 21.17p despite reports Australia’s Macquarie was considering a bn bid for the bank’s aircraft leasing business.

Cairn Energy climbed 2.3p to 305.4p despite Credit Suisse restarting coverage following the sale of the bulk of its stake in its Indian business to Vedanta Resources with a neutral rating. The bank said:

With Cairn’s commitment to return a large proportion of the proceeds from the sale of its Cairn India stake, we think the nature of the investment proposition to the market is looking uncertain. In future it will likely be up to the wider industry to determine the availability of funding for the Greenland portfolio. If the vast majority of the .8bn is returned, then what remains is a speculative exploration vehicle that is only funded for four wells in Greenland in our opinion. We reinstate coverage with a neutral rating on the basis that maybe, just maybe, one of the upcoming wells in Greenland will discover oil.

Scottish and Southern Energy rose 21p to £12.69 after Investec raised its target price from £12.14 to £12.79 “to incorporate a slightly more bullish outcome from the ratcheted-up capital expenditure programme.”

Imagination Technologies slipped 0.5p to 325p despite news of a new licensing contract with Sony. Analyst Eoin Lambe at Liberum Capital repeated his sell advice to clients ahead of an expected trading update, saying:

Sony is an existing Imagination licensee so this is not major news. Interestingly Sony only licensed Imagination’s older intellectual property (Series 5 not 6), which comes with a lower licence fee. [This is the] first license announcement since the year end – we don’t expect the licensing strength seen [last year] to continue in current environment. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds