Shire was the top FTSE 100 gainer yesterday amid talk of a £7.25 billion bid from Pfizer, the American pharmaceutical giant. A price of £13 a share was mentioned, probably because this was the peak that Shire reached in September before worries over slow US sales of its Vyvanse hyperactivity drug dragged it down.

Shire rose 47p to 990p on more than twice its usual volume. Pfizer must address a sales hole that will arise when patents expire on some of its blockbusters, such as Lipitor, the anticholesterol treatment, which produces $13 billion (£6.4 billion) in annual sales. Its interest may have been attracted after Shire’s fourth-quarter figures three weeks ago, when it said that Vyvanse was selling in line with its forecasts. Rumours of a bid for Shire emerged two weeks ago, with no name attached.

Early gains on the FTSE 100 were wiped out by news that Bear Stearns needed a rescue by the Federal Reserve Bank of New York because its lenders had refused it credit in the previous 24 hours. Traders were speculating about the next victim and many settled on UBS, which lost 7.4 per cent on the Zurich bourse. Lehman Brothers dived in New York.

The blue-chip London index closed down 60.7 points at 5,631.7. HBOS, with its £42 billion exposure to mort-gage-backed assets and bonds, headed the fallers by declining 6 per cent, or 34p, to an eight-year low of 528p. Barclays was down 17¾p at 433p. If banks are refusing to deal with a prime brokerage such as Bear Stearns, companies that deal between such brokers, such as Icap, will lose business. Icap fell 36p to 598p.

Prudential lost 32p to 622p, although its results were in line because there was no news of a rumoured investment from Ping An, the Chinese insurer.

Goldman Sachs cut a swath through the supermarkets with a “sell” note on Tesco, down 13½p at 380¼p, and cutting ratings on Wm Morrison, off 11¼p at 278½p. Echoing Morgan Stanley this week, Goldman gave warning that Tesco was about to start a price war: “Tesco’s underperformance of the UK grocery market has now lasted one full quarter. We believe management will look to counter this by engaging in pricing and promotional tactics.” Interestingly, it was J Sainsbury, which Goldman cut from “conviction buy” to “buy”, that fell hardest, down 13¼p to 326¼p.

International Power rose 11¼p to 393p after Deutsche Bank upgraded to “buy” after the power generator’s numbers last week.

Record oil prices helped Tullow Oil up 24p to 653½p.

Rumours that JPMorgan Cazenove, the broker for Xstrata, had agreed a sale to Vale, of Brazil, at £42 a share and similar reports from the Brazilian press helped to keep Xstrata, up 17p at £39.38, and the mining sector rising. Should Xstrata be sold, Rio Tinto, up 120p at £55.27, is more likely to be bought by BHP Billiton, up 56p at £15.90. Lehman named the latter pair its top selections in the sector.

DSG International fell 2½p to 56½p after Dresdner slashed its price target to 55p.

New York: Shares on Wall Street fell as investors digested a plan to help Bear Stearns. At midday the Dow Jones industrial average was down 234.70 points at 11,911.00.

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