Sometimes there can be smoke without fire. That looked to be the case with the tobacco group Gallaher, which soared in early deals on gossip that Altadis, of Spain, could launch a bid for the maker of Silk Cut. It looked a doubtful story, not least because Altadis itself is seen as vulnerable and shareholders would be unlikely to back the necessary fundraising.

In the words of Dresdner Kleinwort: “Would all the investors holding on to Altadis for a takeout actually dig deeper into their pockets to fund an acquisition with dubious synergies that would massively reduce the probability of the cornerstone of their investment case — that Altadis itself would be taken over?” Moreover, Altadis has seemed to be keener to defend itself from predators by expanding its distribution side and its smokeless tobacco operations. The logical move, analysts said, would be for Altadis to make an offer for Gallaher’s non-core Austrian distribution unit, then perhaps look to bulk up by buying Swedish Match.

More credible was talk of a big deal involving Japan Tobacco, for whom Gallaher and Altadis are both viable targets. The Tokyo-based company has made no secret of its ambition to gain market share in Europe and has an estimated firepower of about £20 billion if it draws down debt facilities. However, no Japanese company has ever made a hostile approach on an international competitor, so any deal would have to be on friendly terms. Gallaher, having peaked at 982p early on, ended the day ahead just 4.5p at 939p.

The wider market stalled, with the FTSE 100 closing down just 1.9 points to 6202.6. That was despite Lonmin leading the miners higher after platinum, its speciality, jumped as much as 11 per cent to reach a record high. Platinum has been in demand of late after Johnson Matthey, the autocatalyst maker, gave a bullish market outlook last week and on talk that a bank was accumulating stocks to cover a new exchange-traded platinum fund. While profit-taking took platinum off its best levels, Lonmin held on to a gain of 100p at £30.80. Its smaller peer Aquarius Platinum closed up 26p at £11.48.

Scottish & Southern Energy was the day’s top performer, closing 54p ahead at £15 on hopes of further sector consolidation after Iberdrola’s approach on ScottishPower, up 5p to 760p. Iberdrola will agree a £12 billion deal before the end of the week, according to reports.

The B&Q owner Kingfisher fell back 4.25p to 262.5p after comments from Home Retail Group about the DIY market sparked concern that Kingfisher’s own figures, due next Thursday, could disappoint. While most analysts believe that B&Q’s sales will recover next year, management at Home Retail, which owns the Homebase chain, said that it was planning for the overall DIY market to decline in 2007.

AstraZeneca was off 21p to £30.10 after Sanford Bernstein, the American research house, moved to “underperform” from “neutral” on worries that the pharmaceuticals group will try to buy its way out of trouble.

Gbola Amusa, analyst, highlighted that AZ’s patents on its blockbuster Toprol-XL hypertension treatment will expire next year, just as generic versions of Seroquel, its schizophrenia drug, and the Nexium ulcer treatment are scheduled to reach the market. More than half of AZ’s present earnings are at risk and there is nothing in the development pipeline to fill the gap, he said.

ITV was the worst performer, slipping 2.5p to 112p after it rejected NTL’s takeover proposal of 105p cash plus new shares of the cable operator worth about 15.5p at existing prices. Credit Suisse, which downgraded ITV to “neutral” yesterday, said that the shares could fall back to 100p as the bid premium fades. Fidelity’s surprise move to buy back 60 million ITV shares at prices between 110p and 114p helped to save the broadcaster from deeper losses.

• New York: Record highs for Boeing and Google pushed the Dow Jones industrial average up 5.10 points to 12,321.60 at the close.

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