Woolwich bid gives Footsie much-needed lift

Confirmation of the long-mooted bid for Woolwich, the mortgage bank, provided London's equity market with a much-needed boost yesterday.

But there was a lingering feeling in the market that, if it were not for the Woolwich bid, sentiment might well have faltered again. A slightly worrying quarterly inflation report from the Bank of England raised the prospect of another rise in UK interest rates in the near future.

London was not helped by a mixed start to the US session, where better-than-expected earnings from Cisco Systems helped the Nasdaq but not the Dow Jones Industrial Average.

Dealers were disappointed that the market failed to follow through from its sparkling morning performance which saw stock prices gradually gather momentum, driving the FTSE 100 to a session high of 6,463.1.

"Wall Street was the real disappointment and that put a damper on London," said one dealer. There was also a suspicion that a sell programme had weighed on the market. "What is disappointing is that we've failed to drive through 6,500 on the Footsie on a day when we've witnessed the long-awaited bid in the banking sector," he said.

The mortgage banks, badly hit over the past couple of years by fears of intensifying competition and the threat from Internet banking, provided much of the initial upside in the FTSE 100 as dealers pondered the prospects for further consolidation in the sector.

Apart from the Woolwich, there were spectacular gains in Alliance & Leicester, Abbey National and Northern Rock.

Balanced against those rises were poor performances from Barclays, the third-worst performer in the top 100 list, and Lloyds TSB. The former fell away amid concerns that it might be overpaying for the Woolwich while Lloyds TSB's small decline was a reflection of market concerns that it too will embark on the acquisition trail.

At the end of the session the FTSE 100 was 55.9 higher at 6,414.0, having posted a three-figure gain at best.

The rest of the market looked secure, the FTSE 250 driving back through the 6,800 at one point before coming off a shade to finish a net 52.4 ahead at 6,796.9.

Helping support the 250 index were strong performances from stocks such as Northern Rock - like the Woolwich, a prime takeover candidate - and Hyder, where an increased bid from the Nomura vehicle St David Capital, saw the former's shares race higher.

The FTSE SmallCap lagged behind, only managing a miserly 2.1 gain at 3,383.0, while the Techmark 100 pushed up 30.7 to 3,502.69.