BAE Systems was the top performer in the FTSE 100, up more than 3 per cent, on talk that a £20 billion Eurofighter deal with Saudi Arabia was imminent.

The defence giant was boosted in early trading after it confirmed The Times’s report that its Armor division was in exclusive talks about a potential $3.4 billion (£1.67 million) contract to build lorries for the US Army.

Later the story circulated that institutions were being readied for a big announcement, likely to be the Eurofighter contract. The Times reported last week that a deal was likely this week. The Saudis are expected to sign the deal ahead of Ramadan, which begins at the end of today. However, BAE is unlikely to be able to tell the markets until Monday.

BAE soared 14¾p to 478¼p on heavy trading with 51.5 million shares changing hands. This and better-than-expected results from Home Retail Group, the owner of Argos and Homebase, helped the FTSE 100 to rally 25.5 points to 6,306.2, even though three-month interbank lending rates held near-nine-year highs.

Home Retail Group rose 10p to 410¾p, while Next continued to benefit from Tuesday’s strong results, closing up 2p at £19.72.

Drax rose ½p to 627½p as it was told that it would be out of the FTSE 100 this week. UBS cut its price target on the coal-fired power station from 575p to 490p because the price of coal had risen by a third since April. Other stocks to be demoted next week are Segro, the former Slough Estates, down 2½p at 508½p, and Kelda, the water company, up 6½p at 875½p. Amec, the construction and oil and gasfield services company, may soon be a blue chip if bid talk is to be believed. It was the biggest FTSE 250 riser, up 31½p to 731½p on heavy trading.

Samir Brikho, the chief executive, has said that he has £700 million cash for an acquisition and Abbott Group, up 1½p to 277½p, and Wood Group, rising 8p to 402¾p, are seen as potential targets.

There has been a spate of director buying among the top 100 companies, but Rentokil Initial edged down 2.2p to 168.7p as Karl Green, the Credit Suisse analyst, challenged Doug Flynn, the chief executive, and his finance director to buy shares if they believed their own recovery story. “Share purchases have been conspicuous by their absence,” he said.

Standard Life, the insurer, lost 3½p to 288¾p as it went ex-dividend and Citigroup trimmed its price target from 340p to 320p.

SABMiller fell 23p to £13.28. Industry rumours that it will bid for C&C, the Irish maker of Magners cider, up 27c at €6.20, are wide of the mark. There is an old story that SAB might team up with Diageo, down 9p at £10.50, to buy Scottish & Newcastle, down 7p at 614½p. Carlsberg is also seen as a potential S&N predator but Blue Oar Securities initiated coverage of S&N with a “sell”, saying that the Carlsberg talk was overdone.

— New York: Wall Street finished essentially flat, with investors confident that the Federal Reserve would lower rates next week but treading cautiously as oil prices crossed $80 a barrel for the first time and the dollar extended its decline. The Dow Jones industrial average closed down 16.70 points at 13,291.70.

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