SHORT-TERM investors piled into insurers on better than expected figures from Legal & General and speculation of a merger between Zurich Financial Services and St Paul Travelers of the United States.

Hot money has chased Royal & SunAlliance all week on word of an imminent approach for the general insurer at the 165p level, with Zurich touted as a possible predator.

But the tables were turned yesterday as Zurich was instead cast in the role of prey on reports that the €34 billion (£23.6 billion) Swiss firm was in the sights of St Paul, which is said to be seeking a cross-border deal to create a rival to American International Group, the world’s biggest insurer.

Analysts gave a mixed response to that speculation, suggesting that Zurich management would be unlikely to agree to a combination with the smaller US group. Further, the scope for cost savings was seen as small. However, the prospect of consolidation, illusory or otherwise, saw RSA put on a further 1¼p at 139½p.

But it was life insurers that enjoyed the session’s best gains, with above-forecasts figures from L&G, up 9½p at 143½p, providing the foundation. But the matching percentage rise in Prudential was driven by rekindled bid hopes. It shares rose 44½p at 672p as a previously mooted tie-up with Aviva, 23½p ahead at 850½p, was given a fresh airing.

JPMorgan was sceptical. It says that Pru is an expensive stock on most measures and does not believe that a potential buyer would desire the insurer’s current negative cashflow. Gordon Aitken, analyst, sees little scope for improvement in this financial year, when he thinks Pru is unlikely to receive a large tax rebate.

The wider market surged through the 6,000 barrier amid the mid-morning “triple witching” — the simultaneous expiry of quarter futures and options contracts — to touch 6,044.0 at its best, before closing a modest 6.2 points higher at 5,999.4.

Kingfisher lost 4¾p to 243¼p as Deutsche Bank moved from “hold” to “sell” and played down the chance of a bid for the B&Q owner. The German broker points out its shares have risen 9 per cent in the wake of a private equity bid for Kesa Electricals, its Comet and Darty spin-off, which has driven them to a 25 per cent premium to the UK retail sector — a level it thinks will preclude predatory interest.

Severn Trent perked up 10p to £11.63 as Dresdner Kleinwort Wasserstein turned less cautious on the water utility, raising its price target from £10.70 to £11.20 to reflect its revised valuation of its Biffa waste management business, which it thinks is benefiting from increased gate fees for landfill.

Cadbury Schweppes dipped 2½p to 580p as Hershey, the US chocolatier, tried to put an end to persistent takeover speculation. Hershey has invariably been seen as either a bidder for Cadbury or a takeover target of the British group. Cadbury Schweppes has previously had a bid for Hershey rejected and Hershey said yesterday that it was not for sale.

Smith & Nephew fell 2p to 537½p, despite hopes of positive news from next week’s Academy of Orthopaedic Surgeons meeting in the US.

• NEW YORK: New data confirming healthy economic growth pushed the Dow Jones industrial average up 26.40 points to 11,279.60 at the close.

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