Hopes of a cash return pushed Bradford & Bingley sharply higher as the blue-chip FTSE registered its biggest gain in three months.

The mortgage lender bounced 23¼p at 423p after Credit Suisse closed its negative call ahead of a trading statement due next Thursday. A 12 per cent drop since mid-May has priced in tough trading and does not account for a potential £500 million in excess capital being returned to shareholders, it told clients.

UBS issued a similar message on Wm Morrison, up 3p at 300¾p. While shares have lost 12 per cent over the past month on fears that higher interest rates would tame private equity interest in the sector, value remains underpinned as the supermarket’s real estate portfolio alone is worth 292p a share, UBS argued. It also saw scope for a cash return of up to £1 billion once management completes a review of its investment properties.

Meanwhile, Centrica took on 16¼p at 380¾p after Citigroup said the shares were looking oversold, having fallen 8 per cent since mid-May. It told clients: “The absence of a price war in UK retail energy and a steadying of UK forward gas prices has removed much of the near-term risk to earnings. Indeed, consensus forecasts are likely to increase.” In the wider market, the FTSE 100 index surged 90.3 at 6,649.9 as US bond yields retreated, calming fears over inflation and global interest rates.

Among the speculative features, International Power rose 6¾p at 435¼p on suggestions that it could be a takeover target for EDF, its French peer.

Whitbread climbed 28p at £18.15 on talk that Starwood Capital has been increasing its holding. Starwood, which has regularly been mooted as interested in carving up the leisure group, is said to have built its stake via options agreements with Credit Agricole, which disclosed a 10.05 per cent stake earlier this week.

Traders also noted that Dresdner Kleinwort had raised its price target on Whitbread to £18 ahead of its trading update on Tuesday. It said that the Premier Travel Inn and Costa Coffee owner has scope to redistribute as much as £875 million to shareholders, equivalent to a quarter of its market value, but doubted that news of a cash return would arrive next week.

HBOS bounced 4p to £10.21, recovering some ground after Tuesday’s badly received results as analysts said the bank could step up its share buyback programme.

There was little time for bearish tales, with Tate & Lyleinching up 2½p at 584p despite talk of tough trading.

Among the mid-caps, Premier Oil climbed 31p at £10.74 after Credit Suisse said the stock represented a short-term trading opportunity.

While the Indian oil producer has recently been mooted once again as a takeover target for Dubai Energy, Credit Suisse predicted that the shares would likely benefit once a gas sale agreement and production sharing deal are announced. Separately, an update on one of Premier’s test wells in northeast India looked imminent.

Stories that Ladbrokes could appeal to a private equity fund were given another airing. Shares rose 19p at 452p as some 34 million changed hands, about three times the daily average, sparking talk of stake-building in the bookmaker.

Short covering lifted HMV by 2¾p to 115½p as ABN Amro lifted its “sell” recommendation ahead of the retailer’s full-year results on June 28. It said that progress in disposing its Japanese division would reassure that the dividend, currently yielding 6.7 per cent, could be maintained.

Pendragon was among the few casualties, losing 4p at 100.25p after Panmure Gordon cut the car dealership from its “buy” list ahead of a trading update next Friday. Current trading looks tough and the possible sale of Jaguar and Land Rover to private equity could put pressure on dealers' profit margins, it said.

New York: Wall Street again surged, giving the Dow Jones industrial average its best two-day advance since last July after data showed that wholesale inflation, excluding energy and food costs, is rising at a gentle pace. The Dow closed up 71.40 points at 13,553.70.

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