Merger speculation enthuses optimists

London's stock market was bursting with enthusiasm yesterday as actual and rumoured takeover/merger news resurfaced and drove the pessimists back to the sidelines.

At the finish of the session, the FTSE 100 was up 126.7, or 1.9 per cent, at 6,658.2, extending the week's advance to 153.4, or 2.4 per cent.

The other FTSE indices also performed strongly. The FTSE 250 advanced 26.1 to 6,554.6, only 28.5 below its all-time record, while the FTSE SmallCap ended the day 28.9 up at a closing high of 3,222.6.

Over the week, the 250 index has risen 70.2, or 1.1 per cent, and the SmallCap 127.63, or 4.1 per cent, thanks mainly to the continuing Internet frenzy. Adding to the overall feel-good factor was the return to favour of the hi-tech/telecoms stocks, which were ravaged at the start of the year amid large-scale sector rotation.

Wall Street's overnight gains, particularly in the technology-heavy Nasdaq, which jumped 107 points, also helped sentiment in London. The US market was apparently unworried by comments made by Mr Alan Greenspan, chairman of the US Federal Reserve.

Mr Greenspan spoke of Fed support for higher borrowing costs to cool an overheating US economy. The Fed's rate-setting open market committee is scheduled to meet on February 1st and 2nd, and many expect a rise in US rates following that meeting.

Wall Street made rapid progress at the start of yesterday's trading session in the wake of a weaker-than-expected consumer price index for December.

There was no doubting the day's biggest story, news that merger talks between Glaxo Wellcome and SmithKline Beecham had resumed. A previous merger attempt, two years ago, failed because of a clash between the heads of both companies.

The news produced gains of 10 and 12 per cent in Glaxo Wellcome and SmithKline at the height of the merger excitement, although they were pared later in the session.

Another area of intense market activity was the retailing sector, where revived rumours of an imminent takeover bid for Marks & Spencer saw the retailer's shares race higher amid heavy trading.

Dealers noted the exceptionally heavy turnover in M&S shares in recent sessions, which prompted talk of a possible stakebuilding operation.

There were casualties, however, notably some of the cyclicals that prospered at the expense of the high-flyers during the market switch in the first week of the new millennium.