Strength among the natural resources companies helped drag London's top stocks to a third straight advance, while some questionable speculation about deals for Anglo American and PartyGaming helped pull in a few buyers in an otherwise torpid session.
The FTSE 100 index closed higher by 11.8 to 5915.2, having swung between 5883.8 and 5936.2 through the day. The FTSE 250 lagged, losing 9.3 to 9503.7, weighed down by LogicaCMG in reaction to a pricey acquisition.
Total turnover through London had barely broken 1.5 billion by the close, around two-thirds the daily average, reflecting a dearth of big corporate or economic stories. With St Leger Day still three weeks off, there was also a lack of participants for what is, traditionally, one of the City's quietest weeks.
Across the Atlantic, the Dow Jones Industrial Average drifted by about 45 to 11337 apropos nothing in particular beyond profit taking. The Dow completed its fifth straight advance on Friday, closing ahead by a similar margin to reach its best level since May.
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Leading the blue chip FTSE leaderboard, Anglo American took on 86p to £24.55. A story in the weekend press claimed that the miner could face a potential $80 billion break-up bid, with Xstrata, Rio Tinto and Brazil’s CVRD reported to have hired financial advisers ahead of a potential approach.
Anglo takeover theories have grown in volume ever since Tony Trahar, the group's chief executive, announced plans to retire early next year. The company has no major shareholders capable of blocking a deal, and would be easier for a predator to digest once it completes a restructuring that includes the sale of its Mondi Europe paper and packaging division.
But sources close to Xstrata claimed the story was well off the mark, and that an advisor was not needed to tell them that a deal would be too large. The Swiss-based firm has just completed the purchase of Canada's Falconbridge, meaning its board probably has its hands full for the moment. Similarly, CVRD has just bought Canada's Inco. Even ignoring the integration issues, neither company could realistically retain investment grade ratings if they were involved another major deal.
Analysts therefore viewed the article as rabble rousing, intended to angle Anglo American onto the radar screen as the mining sector consolidates.
Dresdner Kleinwort analysts commented: "given the group's size, any hostile cash bid is unlikely in our view and, in any case, we do not believe that other mining groups would approach Anglo prior to the completion of the disposal of Anglo's paper business. Furthermore, particularly in the case of a bid from Rio Tinto, a deal might run into problems in terms of competition regulation, although this could probably be solved through selected asset disposals."
SocGen's team reckoned the most likely endgame would be for Anglo to pursue a merger of equals with Rio Tinto. "Note that Rio’s chairman Paul Skinner and Anglo’s CEO Tony Trahar recently assuaged our fears of value-destructive M&A deals, highlighting that both companies share the same strategy/way of thinking," it said.
Other mining stocks hardened in tandem with metals prices after workers at the world's biggest copper mine rejected the latest settlement offer as a strike moved into its third week. The Escondida mine in Chile was shut down entirely on Friday in response to union road blocks.
BHP Billiton, majority owner of the mine, was ahead 18p to £10.50 before results due Wednesday, which are expected to come with a $3 billion share buyback. Copper prospectors Kazakhmys rose 23p to £12.32 and Antofagasta tightened 4.75p to 435.75p.
Copper added about 2 per cent to $7600 a tonne on the London Metals Exchange, matching its gain on Friday. Still, the copper price has barely changed through the Escondida strike, just managing to hold steady as alternate commodity markets such as gold, oil and aluminium drifted lower.
Some commentators have argued that this tepid reaction would indicate a lack of confidence that copper markets were reflecting fundamentals. Some traders reckon that, when apparently bullish news makes no waves on the markets, it indicates that a price is already over-stretched.
However, Jon Bergheil, metals analyst at JP Morgan, argued that copper traders had already been "mentally prepared" for a two- or three-week strike at Escondida. "If workers are still on strike this time next week then the copper price is likely to respond with greater sensitivity than it as done over the past two weeks," he told clients. "If workers are still on strike next week then copper may break free of the millstone-effect of its declining peers."
Among the oilers, BP extended Friday's gains, up a further 5p to 619p following Goldman Sachs' upgrade to "neutral" from "sell". The US broker, which stuck to a 665p price target, made the call on valuation grounds.
That came as oil prices inched higher, with a barrel of New York benchmark up nearly a dollar to hold within a few cents of $72. An Israeli commando raid into Lebanon strained their fragile truce, while Iran's continuing rejection of calls by the United Nations to stop its uranium enrichment program added to the geopolitical tension.
Track today's trading by industry sector here.
Elsewhere among the blue chips, PartyGaming took on 3.5p to 114.5p on reports the online gaming group is leading the race to buy sport betting firm Victor Chandler, valued at about £300 million.
Sector watchers said that it was logical that PartyGaming would take a look, given its sizeable acquisition budget, although it may not fit strategically given the poker firm has a much lower-rolling client base than the bookmaker.
GlaxoSmithKline eased 6p to £14.37 despite the best efforts of Sandford Bernstein, with the US research house recommending clients use recent weakness to build positions. Bernstein listed several potential stock catalysts in the second half, including key trial data due this month on its asthma drug, Advair, and its Avandia diabetes treatment.
Glaxo could also launch three "potential mega-blockbuster" franchises" in 2007: Tykreb and Cevarix, for breast and cervical cancer respectively, and Promacta for thrombocytopenia, Bernstein continued. The H5N1 bird flu vaccine, which will hopefully not be required to reach blockbuster status, could also provide a "very newsflow-worthy franchise", it told clients.
"The long-awaited pipeline story is finally coming through," said Bernstein, repeating "outperform" advice with a £16.75 price target.
InterContinental eased 1p to 904p ahead of interim results due tomorrow where the hotel operator may (but probably won't) provide further detail on its cash return programme. Analysts at ABN Amro estimate InterContinental has enough room on the balance sheet to return £675 million next year.
The company is expected to show first half earnings at about £119 million from continuing operations, up from £116 million this time last year. Without cash return news, much of the focus will be on the outlook statement, as investors want indications that average revenue per room will keep growing and cost inflation is under control.
LogicaCMG faded 13p to 159.5p after the computer services firm revealed its largest ever takeover deal, buying Nordic rival WM-Data in a transaction worth £882 million. Logica will issue up to 409 million new shares to fund the takeover.
WM-Data is the third-largest IT services company in the Nordic market by revenue, and last year generated profit before tax equal to £29.5 million. That put the deal on a ratio 19.3 times earnings per share for the current year -- pricey, given Logica itself trades at abour 15 times 2006 earnings expectations, in a sector that averages 14 times. Some ambitious cost saving plans lower the takeover ratio to 14.5 times 2007 earnings, which is about in line with other deals in the sector.
Nevertheless, Deutsche Bank moved to "hold" from "buy" on Logica. It was worried that Norwegian shareholders would not particularly want to hold the English stock, and that the strategic rationale was not without risks
"While we support the move to add scale we have some concerns that WM-data revenue base is overweight outsourcing (particularly infrastructure) which Logica has traditionally been shy to accept. This may raise some questions on true synergy," the German broker told clients.
For more on the deal, click here.
Down on AIM, it may be worth keeping an eye on Congo-based Central African Mining & Exploration Company, or Camec, which supplies 15 per cent of the world's cobalt concentrate. According to Credit Suisse, the market for cobalt is being squeezed as miners in Congo switch production to metals giving a higher return per tonne, which "could be the beginning of a major change in sentiment in the market". Some 90 per cent of cobalt concentrate is sourced as a by product of copper and nickel.
After spending three years trading in a tight band, prices of cobalt have jumped about 40 per cent in recent weeks as demand, principally from China, exceeded supply. Some believe demand for the metal -- used in high wear applications such as gas turbine engines, paints and battery electrodes -- has also been buoyed by Dell's recent recall of 4.1 million laptop computers due to faulty batteries; its supplier reportedly replaced cobalt with a cheaper metallic alloy about three years ago.
"The severe shortage of cobalt concentrate could lead to panic buying by the Chinese who buy nearly 90 per cent of their concentrate needs from the Congo and represent 20 per cent of global cobalt cathode production," pitched Credit Suisse.
Cobalt currently stands at about $20 a pound. Credit Suisse calculated that every $1 increase in the price of cobalt adds $11 million to its earnings forecasts for Camec. Its estimate of $77 million in 2007 is based on an average $15.50 per pound price this year and next.
The Swiss broker repeated "outperform" advice on Camec with a £1 target, although it was not pushing the stock towards its widowed or orphaned clients. "The group’s main business is situated in the Congo which is days away from an election result. Land ownership issues and political unrest are all part of doing business in the Congo and investors should recognise these inherent risks," Credit Suisse cautioned.
Camec shares drifted 1.5p to 48.5p.
Also on broker watch:
Dresdner Kleinwort cut Kingfisher to "hold" from "add".
Cazenove upgraded Premier Farnell to "outperform" from "in-line" and moved AB Foods the opposite way.
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