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Tullow leads the way as FTSE 100 gains more than 3% on Euro and US hopes

Tullow Oil led a buoyant market higher on renewed takeover talk and hopes of positive drilling news.

Last week Tullow gained ground on speculation that China National Offshore Oil Corporation could be interested in the company, with a price of £16 to £17 a share mentioned. The story did the rounds again, pushing Tullow shares 82p higher to £11.68, a 7.5% increase which made it the biggest gainer in the FTSE 100 . Traders are also awaiting developments at some of the company’s exploration projects, especially in French Guiana. In a recent note Credit Suisse said:

We think the market’s eager anticipation of the Zaedyus and Montserrado wells neatly sums up Tullow’s investment proposition at present: as the UK’s largest exploration and production company, it simply needs another ‘elephant’ discovery in order to keep investors interested and maintain the hefty premium at which it trades relative to core net asset value.

For potential ‘elephants’ we look to upcoming wells Zaedyus in French Guiana (+53p a share potential), Jaguar in Guyana (+58p a share potential), Monteserrado in Liberia (+38p a share potential), Jupiter and Mercury in Sierra Leone (+21p a share potential), and two wells in Cote d’Ivoire (+86p a share potential).

Meanwhile BP bounced 14.85p to 386.5p after it announced its second major oil discovery in the Gulf of Mexico in two days. An appraisal well at its Mad Dog field found oil, which could mean it has up to 4bn barrels in place. On Tuesday Chevron unveiled a discovery with BP at the Moccasin prospect in the Gulf.

Ahead of President Obama’s key speech on Thursday, when he is expected to announce measures to boost the flagging US economy, investors rediscovered their appetite for risk, pushing the FTSE 100 up 161.75 points to 5318.59, its biggest one day rise since May 2010.

Markets were also heartened by news that a German court ruled the country’s backing for the Eurozone rescue package was not illegal, which helped lift European markets around 4%. There was also talk that China’s central bank might ease monetary policy in the next few months.

Banks rebounded after their recent falls on worries about their exposure to the Eurozone crisis and news of US legal action on subprime mortgages. Lloyds Banking Group gained 1.98p to 32.73p, Barclays was 9.2p better at 159.95p and Royal Bank of Scotland rose 1.29p to 22.46p. Giles Watts, head of equities at City Index, said:

Considering the uncertainty over banks at present in the midst of charges relating to sub prime mortgage selling, potential downgrades to come from ratings agencies and exposures to sovereign debt, the reaction today is immensely positive but we need to see these gains hold and form a base upon which more gains could come.

But with gold falling nearly an ounce to around £18.13 as investors move away from safe havens, Randgold Resources dropped another 160p to £67.80 and African Barrick Gold dipped 4p to 599.5p. African Barrick, which has four gold mines in Tanzania, said it planned to list on the country’s exchange by the end of the year. This is later than the initial plan of making the move by the end of this month. It also said it was planning to double output to 2m ounces by 2024 from an expected 1m ounces in 2014. It produced 700,000 ounces last year.

Elsewhere among the fallers Imperial Tobacco lost 40p to £20.65 after Goldman Sachs removed the cigarette maker from its pan-European buy list and cut its target price from £24 to £21.90.

But Marks & Spencer added 12p to 313.8p on speculation of possible private equity interest. There were suggestions of an approach for the 3.7% stake held by investment group Brandes at around 400p a share.

Among the mid-caps Regus rose 8.15p to 77.5p – a near 18% increase despite the shares going ex-dividend – on vague talk of a possible takeover of the office space specialist. But traders pointed out that it was unclear who a predator would be, and in any case chief executive Mark Dixon holds around 34% of the business, while other directors have been buying stock recently.

Prezzo rose 3.5p to 61p following a 17% rise in half year profits from the restaurant chain.

Finally IQE, which supplies materials for semiconductors, fell 3.5p to 28.5p despite a 28% rise in half year profits as it made cautious noises about the global economic outlook, although it maintained it would meet current market expectations. Analysts at Investec moved from buy to hold and halved their target price from 62p to 31p, saying:

We continue to see IQE as an exciting, high-growth proposition over the medium term. However, against a more difficult macroeconomic backdrop and a reduced appetite for risk we are conscious of the speed with which a downturn could impact IQE. It already appears that the upgrade story has paused and we now see an element of forecast risk to the downside. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds