Continued talk that Anglo-Australian miner BHP Billiton was considering a bid in partnership with Brazil’s CVRD made Rio Tinto the strongest blue-chip performer.

The theory is that BHP could sell on iron ore assets to CVRD to avoid competition concerns. But it is understood that the Takeover Panel has already made inquiries and established that no statement from BHP is necessary.

There is a chance, market sources say, that talks may happen but it is more likely to be after Rio completes its Alcan acquisition. Rio closed up over 5 per cent, or 191p, at £37.15. BHP was also a strong performer, up 56p at £14.73 but it was also helped by a Lehman upgrade. It said that its petroleum arm had been undervalued and overlooked by investors and that its chief Mike Yeager believes it has 10 per cent annual growth potential.

Miners in general were strong on a soaring gold price and firm prices for other metals. Lonmin rose 152p to £33.79, Vedanta Resources was up 63p to £19.10 and Kazakhmys put on 36p to £13.50. Anglo Americangained 77p to £29.18.

The bid talk and near-record oil prices helped to drive the FTSE 100 up 42.6 to 6313.3 by the close at a time when Wall Street too was on the rise.“I’m amazed by the performance of the market today,” said one trader. “There’s thin volumes and nothing driving it.”

BG Group surged 38p to 824½p on the back of the rising oil price – above $74 in London – and news it had made another oil discovery in Brazil.

Bid talk surrounding Burberry helped it to add 4½p to 611½p. US luxury group Coach is thought to be seeking a global boost. Merrill Lynch said a takeover by Coach would make an “incredible” tie up. Burberry was also upgraded by HSBC, which admitted it had underestimated its potential.

Reutersrose 9½p to 640p after Lehman upgraded its rating from equal-weight to overweight, saying that the merger with Canada’s Thomson would create a global leader in financial and legal publishing.

Financials were once again badly hit by credit worries despite the Bank of England holding interest rates. The three-month interbank lending rate has risen to a nine-year high and Northern Rock was the second-hardest faller, off 21p at 672p. Credit Suisse turned the knife saying: “We remain cautious on the UK banks sector and within that remain most negative on Norther Rock.”

It also said HBOS, owner of Halifax, up 4½p to 897p was vulnerable, although to a lesser extent but, contrary to popular opinion, it believes Bradford & Bingley, down 4½p at 356¾p, would be relatively immune.

Drax Group, the coal-fired power station, was the worst performer, down 38p at 637½p, after it gave warning that margins could be hit by rising coal prices while UK gas prices are falling.

Benfield, the Lloyd’s insurer, was the worst performer of the mid-cap stocks, off 16¾p to 289p, after interim results were hit by hurricane claims.

New York: Wall Street shook off early uncertainty to close moderately higher as mixed economic reports left investors more optimistic about the chances for an interest rate cut. The Dow Jones industrial average closed 57.80 up at 13,363.30.

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