Abbey prepares for US suitor

Troubled mortgage bank Abbey National was again the main talking point in a strong London market as its share price swung violently in response to the latest takeover speculation.

Reaching 473p in early dealings, as the City reacted to reports that it was considering reopening takeover talks with Santander Central Hispano, its shares came all the way back to 432p amid rumours that the Spanish bank had told the Takeover Panel that it was not interested in pursuing a deal.

However, Abbey then rallied to close 9.5p higher at 462p with the City taking the view that if Santander does not bid then somebody else from Europe or the US will. The name in the frame late yesterday was Wachovia, the $60bn (£34bn) US financial services company.

Commenting on the takeover speculation, analysts at Dresdner Kleinwort Wasserstein said: "Abbey's customer base - of somewhere around 16 to 18 million - is a very attractive and under-utilised asset and a bid for the group would not surprise us."

All told it was a busy day in the banking sector. Egg rose 8p to 163p on rumours that MBNA, the world's largest independent credit card issuer, is poised to make an offer for the internet bank.

According to yesterday's tittle-tattle, the deal could be announced at the annual meeting of Prudential, 6.25p higher at 449.5p, tomorrow. Prudential is Egg's biggest shareholder, owning 79% of the company, and therefore has the power to decide its fate.

In turn that story fuelled the rise in life assurer Friends Provident as some optimistic punters took the view that Prudential would use the proceeds from the Egg deal to make a bid for its smaller rival.

Whether that deal comes to pass an increasing number of City professionals believe Friends Provident's days as an independent company are numbered. Its shares closed 3.75p higher at 144.75p on volume of 19m shares - twice its daily average.

Those strong performances, combined with a long overdue rally in the mining sector, helped the FTSE 100 post its biggest one-day gain in five-and-a-half weeks and claw back a large chunk of last week's 80-point loss.

The final scores showed the FTSE 100 index up 57.5 points at 4,547.2, with mining stocks leading on bargain hunting. The sector was also helped by a falling dollar, hedge funds moving to close profitable short positions and upbeat comments from investment bank CSFB. "We are now prepared to add money to metals and mining ... the issue we faced on pricing has been resolved and value has been restored," it said.

Anglo-American spearheaded the sector's advance, climbing 40p to £11.75, closely followed by BHP Billiton, up 15.5p at 466p, and Xstrata, 18p higher at 652.5p.

Away from the blue chips, the FTSE 250 index added 18.1 points to close at 6,228.8, while the FTSE Small Cap index firmed 0.9 points to 2,626.2. Market turnover topped 2.8bn shares.

In the bond market, gilts closed higher ahead of last night's interest rate decision in the US. The benchmark 10-year gilt closed at 100.41, yielding 4.948%.

Back in the equity market, medical devices group Smith & Nephew, which reports first-quarter figures tomorrow, jumped 18.5p to 591p in response to an upbeat presentation at Deutsche Bank's global healthcare conference in Baltimore by the head of its orthopedics business.

Rolls-Royce was marked 6.25p higher at 237.75p on hopes the aero-engine maker would issue an upbeat trading statement at today's annual general meeting.

Tullow Oil was the top dog in the FTSE 250 as it returned from suspension after completing the $500m (£280m) acquisition of Johannesburg-listed Energy Africa. Tullow will raise £120m in a share placing at 95p to fund the deal, which has impressed analysts. Its shares rose 10.25p to 97p.

Countrywide Assured, the estate agency chain, was another strong performer after its joint broker Panmure Gordon upgraded its earnings forecast. Its shares rose 7p to finish at 187p.

Colt Telecom was also in demand after Morgan Stanley upgraded to overweight on the grounds that recent share price underperformance had created a good buying opportunity.

Colt shares have fallen 34% since the company filed fourth-quarter figures in February. Yesterday they rose 2.25p to 76.5p.

On the downside, merchant bank Singer & Friedlander fell back 41.5p to 229.75p as the shares traded without entitlement to a 26p special dividend.

Builder's merchant Travis Perkins, down 20p to £14.15, finally came off the boil after CSFB advised clients to take profits and switch into Wolseley, 3.5p stronger at 830p. Travis Perkins shares have risen 10.7% since the start of the year and recently reached an all-time high.

In the retail world, Matalan bounced back from early weakness to close 2.75p higher at 172p on hopes that the discount retailer will announce a held dividend when it reports preliminary figures today.

Among the small caps, British Energy was again the stand-out as its share price reached a fresh 12-month high - punters taking the view that the company is seriously undervalued despite the looming debt for equity swap. British Energy closed 2p higher at 14.3p.

Insurance group Domestic & General rose 5p to 597.5p amid talk that its warranty business has stabilised. Torex Retail, which develops software to monitor supermarket queues, improved 2p to 70p after its recently appointed chief executive Mark Pearman declared the purchase of 100,000 shares at 68p each.