Talk of a bid helped Premier Oil, the explorer with assets in the North Sea, Africa and South-East Asia, to add nearly 7 per cent at one stage yesterday. The rumour is of a bid in the region of £15 a share, valuing the group at £1.23 billion. Mol, the Hungarian oil producer, is seen as the potential predator, but others cited in the past include Santos, of Australia, Eni, of Italy, Shell, Dubai Energy and ONGC-Mittal.

Premier, which closed up 53p at £12.35, was also helped by Phil Corbett, of ABN Amro, who set a £14.85 price target and said that Premier was his top pick of the oil stocks, with potentially exciting drill results in Vietnam.

Although oil prices fell, Mr Corbett pointed out that prices for delivery of oil in about five years’ time are more than $86 a barrel.

At one stage the FTSE 100 fell by 118.7 points, but by the close, as Wall Street began to pick up on relief at Citigroup’s bailout by Abu Dhabi, the London index was down only 39.8 at 6140.7. Profit warnings from Pendragon, the car dealer, down 18¾p at 35½p, and Signet, the jeweller, off 13p at 64p, kept the index in the red after a volatile session, however. Goldman Sachs added to woes by saying that it expected that the chances of a recession in the United States had risen from 30 per cent to between 40 per cent and 45 per cent.

Tullow Oil, up 15½p to 603½p, defied the falling oil price, thanks to Merrill Lynch reiterating its “buy” advice ahead of an investor roadshow. It said that it expected a stream of positive results from exploration wells. Home Retail Group lost 16¼p to 340¼p after threats of a strike before Christmas from workers at Argos in Ireland and Signet prompted worries over a retail downturn.

Kingfisher, the owner of B&Q, was off 3.7p at 159.1p ahead of third-quarter results tomorrow. Credit Suisse cut its price target, saying that sales at B&Q would be flat. John Stevenson, of Shore Capital, believes that Kingfisher and Woolworths, off 1¼p at 14½p, will be losers from a weak Christmas.

Barclays, up 27p at 524p, helped to turn sentiment around over the bank sector, saying that it expected earnings for the full year to be “broadly” in line with consensus. Dresdner Klein-wort said the phrasing gave Barclays room for a slide in earnings in the last months of the year. Northern Rock topped the blue-chip gainers, closing up 8.6p at 118.7p.

Benfield Group was up 18¼p to 300p after a note from ABN Amro, which speculated that Aon, of the United States, was considering a bid.

De La Rue, the printer of bank-notes, gained 69p to 850p after it said that it would start a strategic review, which could end in a break-up. Paul Jones, of Panmure Gordon, who had predicted the disposal of its cash systems business, said that the division could fetch about £400 million.

Regus dropped 7½p to 75p after Robert Bonnier’s vehicle Cold Investments sold 100,000 SCi Entertainment shares, triggering rumours that he was a forced seller on margin calls. SCi lost 39¾p to 199p.

— New York: Shares on Wall Street rebounded on news that the Abu Dhabi Investment Authority was investing $7.5 billion (£3.6 billion) in Citigroup. The Dow Jones industrial average closed up 215.00 points at 12,958.40.

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