Imperial Tobacco was the day’s top blue-chip performer amid hopes that a rival bid for Altadis was unravelling.

PAI, the Paris-based private equity firm, was understood to have pulled out of its alliance with CVC Capital Partners, which has provisionally offered €12.8 billion (£8.7 billion) for the Franco-Spanish tobacco group. The buyout funds have reportedly disagreed over how Altadis would be carved up.

That tale intertwined with fresh talk suggesting that Imperial was preparing to match the consortium’s offer, potentially giving Altadis shareholders a more attractive exit route.

City sources reckon that, while CVC would press on with the bid as PAI withdraws, it would be looking for Spanish investors to take an equity slug of as much as 40 per cent.

Research from SG Securities suggested that Imperial could afford to pay more than €13 billion for Altadis and still boost 2008 earnings. On the other hand, it said that a failure to win the battle would put management under pressure and effectively put the British company in play.

The wider market recovered from a mid-morning slump, matching a robust worldwide response to news that China had tripled its stamp tax on stock trading. The FTSE 100 index pared a 73-point drop to close down just 4.40 points at 6,602.00.

GlaxoSmithKline provided the day’s most spectacular turn-around, with shares rallying from a two-year low of £12.69 to close up 22p at £13.28. Dealers connected the rebound with a letter from the group’s chief medical officer, published in The Lancet, which defended the safety record of its Avandia diabetes drug.

Among the casualties, Royal & SunAlliance shed 2.6p to 159p after Bjorn Wahlroos, chief executive of Sampo, reportedly dismissed talk that the Nordic insurer could make a bid approach.

SABMiller drifted 4p to £11.95 as it hosted a seminar on improving profit margins for Miller beer, which is its biggest revenue generator but provides just 10 per cent of earnings. Norman Adami, president of SABMiller’s Americas division, said that the brewer was open to acquisitions that would improve its position in the United States – a comment that triggered speculation of a tie-up with Molson Coors, its Canadian peer.

Whitbread rose 12p to £18.95 amid talk that it is poised to enter exclusive talks with London & Regional over the sale of its David Lloyd Leisure arm for about £940 million.

There were vague whispers that Greene King, up 6p at £11.16, could find itself on the end of an offer. Robert Tchenguiz and Punch Taverns, down 4p to £13.58, were being tipped as possible suitors. In the FTSE 250, British Energy dropped 32¼p to 537p after the Government said that it would sell a 25 per cent stake in the nuclear power firm, cutting its holding to 39 per cent.

London Stock Exchange headed the leaderboard, rising 55p to £13.93 on hopes that Nasdaq could rekindle its interest. That came after The Times revealed yesterday that the American exchange was not planning to sell its 30 per cent stake in LSE to fund a takeover offer for OMX, the Nordic bourse operator.

OMX shares have been trading above Nasdaq’s offer price ever since its deal was unveiled on hopes of a counter-bid. The government-owned Dubai International Finance Centre is said to have hired HSBC to advise on a move for OMX.

Traders were also watching frantic dealing in Eurotunnel, up 38½p to 77½p. Shares have risen 360 per cent since Tuesday morning, when trading restarted after the Anglo-French group agreed a debt-for-equity swap. The surge has led France’s stock market regulator to tell brokers not to execute trades that are not covered by cash or shares.

— New York: Shares on Wall Street advanced sharply after minutes from the latest Federal Reserve meeting offered investors no significant surprises about the US economy. The Dow Jones industrial average closed at a record high, up 111.80 points at 13,633.10.

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