Scottish & Newcastle, the brewer, was up 1½p at 599½p as rumours that it had held informal talks with Carlsberg, its Danish rival, began to surface.

Some industry sources believe that only the location of the headquarters and the composition of a combined board are holding back formal talks.

Tony Froggatt, the S&N chief executive, is expected to retire to Australia in 12 to 18 months, but John Dunsmore, managing director for Western Europe and widely seen as his S&N heir, would need a big role in a combined group. However, the Danes are thought unlikely to allow this.

Jamie Norman, an analyst in Dresdner Kleinwort, added fuel to the fire by saying that S&N management in investor meetings had not rejected the idea of a Carlsberg takeover “subject to the correct premium for control and a degree of S&N management involvement in the enlarged business”.

Mr Norman rates S&N a “buy” with a 670p target and said that investors should look through recent weather-related poor trading to growing brand strength, particularly Bulmers.

London shares managed to scrape a fifth day of gains and the FTSE 100 closed up 0.9 points at 6,196.9 as a 90-point gain in early trade was eroded. The mood was reflected by one senior trader in an investment bank who said: “We just don’t trust this rally. The big money is still sitting on its hands and we’re keeping stocks off our books, even though we’re generally bullish about the long term.”

Financials such as Northern Rock, up 29p at 757p, and Schroders, up 54p at £13.34, led the risers again. Rock is still being buoyed by vague bid rumours, with HSBC and ING named as suspects, although ING has played this down and analysts believe current conditions make an immediate bid unlikely. The slightly more confident feeling has been helped by Bank of America’s acquisition of a $2 billion stake in Countrywide Financial.

InterContinental Hotels Group rose another 17p to £10.68 as persistent rumours of a bid refused to die down, with the US rival Starwood Hotels & Resorts seen as the predator.

Man Group, the hedge fund manager, also continued its rally, rising 8½p to 490p, as analysts pointed out that its key US fund, AHP, is proving resilient to the credit turmoil.

HBOS gained 18p at 898p as Goldman Sachs trimmed its price target on the bank but kept it at a premium – £12.30. Goldman put Alliance & Leicester, long the subject of takeover rumours, on its “conviction” sell list, but kept its price target of 912p. A&L edged up 2p to £10.61.

Persimmon, the housebuilder, lost 30p to £12.23 after ABN Amro cut its price target by 190p to £15.30, indicating that the days of big earnings growth were behind it. Sage Group was down 3¾p at 226p, even though Dresdner Kleinwort said that strong results from its rivals Intuit and Tech Data showed that US demand for its healthcare software wasstronger than expected. Hammerson was off 32p at £12.75 and British Landwas down 28p at £12.58 amid fears over City job cuts and low property valuations.

— New York: Shares closed a fraction lower after anxiety about widening credit problems offset investor optimism about the cash infusion into Countrywide Financial. The Dow Jones industrial average finished at 13,235.90 points, down 0.20.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive