Plenty in store at Sainsbury

With precious little going on in the Square Mile yesterday, bar a late recovery by the FTSE 100, stockbrokers had to be at their most creative to drum up some commission. As usual they came up with the goods, peddling a particularly tall story that Philip Green, the retail entrepreneur, had tabled an offer for J Sainsbury , which was immediately rejected by chief executive Sir Peter Davis.

Surprisingly, in view of the fact that Mr Green rubbished the story on one of the financial news wires that serve the City, it worked. Sainsbury's shares, which traded lower for most of the morning, rebounded to close 7.75p higher at 275.5p - one of the best performances in a dull FTSE 100.

Now it should also be said that Sainsbury's stock price was also supported by purchases by income investors, who needed to be on the shareholder register at the close of play last night to qualify for Sainsbury's final dividend of 11.36p.

Nonetheless, market professionals said the story had drawn attention to the fact that Sainsbury could receive a takeover approach from a private equity group.

Although Sainsbury - market capitalisation £5.2bn - would certainly be a sizeable mouthful for anyone outside the industry, it does have a substantial property portfolio, the company's net asset value is 260p, and a lowly valuation - the shares trade on ten times prospective earnings.

That said, any deal would require the blessing of the Sainsbury family, which controls 35% of the company.

In the wider market, leading shares staged a strong recovery after Wall Street moved higher in the wake of news that US consumer spending had risen to a six-month high in May. However, the FTSE 100 , which was down 50 points early in the session, once again failed to hold the 4,000 level, closing the day 12.6 points higher at 3,992.4.

Elsewhere, the FTSE 250 eased 1.7 points to 4,677.2, while the FTSE Small Index rose 4.4 to 1,975.7. Market turnover topped 2.7bn shares, swollen by heavy trading in Vodafone (714m) after its full year's results, and ARC International (165m) after the chip designer completed its tender offer.

In the bond market, gilts fell as investors switched into the equity market in the wake of the US consumer confidence figures. The benchmark 10-year gilt gained 25 to 107.150, pushing the yield back above 4%.

Mining group Xstrata, down 16p to 423p was the day's main blue chip casualty amid concerns that its £1.4bn acquisition of MIM, the Australian copper producer, is in trouble.

Opposition to the deal has been mounting down under and overnight it emerged that Robert Champion de Crespigny, the founder and chief executive of the former Normandy Mining, had agreed to head an alternative MIM board if shareholders vote against the deal at a special meeting on June 6. However, the London office of ABN Amro is confident that MIM shareholders will vote in favour of the deal. To that end it was advising its institutional clients to buy Xstrata's nil-paid shares. Readers will remember that Xstrata has launched a £900m rights issue to help fund the deal, the terms of which are three nil-paid rights of 245p each for every two Xstrata shares owned.

"While there is a clear risk that the deal will not go through, we believe the risk is much smaller than the 50% that the Xstrata rights are factoring in. On a risk reward basis we recommend buying the Xstrata nil-paid shares," ABN said in a research note. Yesterday, the nil-paid shares closed 12.75p lower at 97.25p.

Profit taking and talk of tough trading saw Dixons ease 3.25p lower at 111p.

Lower down the market, internet travel group Lastminute.com continued its recent strong run, rising a further 6.75p to 136p. The gain came despite news that Cheetah International, one of the company's earlier stage backers, had sold 2.5m shares on Friday, when Lastminute jumped to its highest level since the tailend of 2000 on the back of bid speculation.

Elsewhere, oil exploration group Cairn Energy marked time at 292.5p despite talk that the Indian Oil Corporation is interested in acquiring the two appraisal blocks held by Cairn off the coast of eastern India. Analysts at Investec Securities reckon the sites could be worth the equivalent of 104p a share.

Meanwhile, Britannic gained 5.5p to 215p after the insurer confirmed it was in talks to sell its mortgage lending subsidiary to Paragon Group , up 3.5p to 233.5p. Brit Insurance , the Lloyds of London insurer, was heavily traded as those institutions which received Brit shares through the company's acquisition of PRI, had their first opportunity to reduce their holdings. The Brit share price rose 1p to 75p as more than 14m shares changed hands.

Lower down the market, the clearance of a stock overhang helped Symphony Plastic Technologies , the maker of biodegradable plastic bags, end 2p higher at 25p. The firm is expected to reveal today that the Environment Committee of the European Parliament has voted in favour of amending the Packaging Waste Directive so that organic recycling of biodegradable plastics will be counted as an acceptable form of recycling.

This is important for Symphony on two fronts. It means biodegradable plastics bags can be used by local councils to meet their recycling targets and companies who use these bags will be able to reclaim packaging tax.