British stocks moved higher for the fifth straight day as positions were squared on the last full trading session before the Christmas break. Hilton Group and BAE Systems were the top performers.
The FTSE 100 closed up 9.6 at 5597.0 -- just off a session high of 5599.3, which was its best reading since July 2001. Gains among house builders helped lift the mid-cap FTSE 250 index to a record-high close of 8727.0.
Fewer than 1.9 billion shares had been exchanged at the close, not much more than half the usual reading. The London exchange will close at 12:30pm tomorrow, reopening on Wednesday.
For a full schedule of the festive season's openings and closings, click here.
It was a similar story across the Atlantic, where indices inched higher after a reassuring Government report on inflation and a few better-than-expected earnings reports in the technology sector. The Dow Jones Industrial Average was up by 24 at 10,858 when European markets closed.
For more on US markets, click here.
Hilton was among the top gainers after confirming it has has received approaches for its Ladbrokes bookmaking business. Management said it will concentrate for the moment on selling the eponymous hotels unit to the group's American namesake, a deal that is expected to be wrapped up by spring.
Valuing Ladbrokes at between £3 billion and £4 billion would suggest a Hilton share price of between 350p and 410p, analysts reckoned. Hilton is already in talks to dispose the hotels unit for around £3.6 billion, which would translate to 209p a share in cash.
Hilton shares were ahead 8p to 365p, a record-high close. The news also lifted William Hill, Ladbrokes' closest rival, by 14p to 540p.
But would it be a smart move to sell Ladbrokes? Analyst at Citigroup baulked at the idea, arguing that Hilton's board would be better off use the business as collateral and hand out special dividends.
Any financial buyer of Ladbrokes would be expected to load the company up with debt. But Citigroup's team reckoned the shares have already priced what it sees as a maximum leveraged offer of around £3.5 billion, or 382p a share. Instead, argued that management should borrow the maximum it can against the betting business.
Borrowing on conservative terms could raies £700 million and would allow for shareholder returns of £4.3 billion, or 250p per share, Citigroup calculated. However, its analysts favoured a more reckless approach, raising up to £1.8 billion on hock. That path implies a share value of 430p, it said.
For more on Hilton's statement, click here.
BAE was the top FTSE 100 gainer for a second day after yesterday signing a landmark export order with Saudi Arabia to supply Eurofighter Typhoon fighter jets. BAE owns a third of the Eurofighter consortium, with EADS and Finmeccanica the other main investors.
The deal, reportedly for up to 72 jets, could be worth up to £10 billion. Shares were ahead 15p to 385p, extending yesterday's 6 per cent gain.
French broker SocGen raised its fair value on BAE shares to 410p from 350p and kept a "buy" rating. It said that the contract "secures a very healthy workload for BAE, as prime contractor, in the medium term". And while SocGen forecasts no income from the Saudis before 2007 at the earliest, it argued that the increased earnings visibility means shares deserve to trade at a higher multiple to earnings.
The Saudi talks may also be good news for VT Group, the shipbuilder formerly known as Vosper Thornycroft. As part of the Saudi's landmark £20 billion Al Yamamah arms deal with Britain, agreed in 1986, VT supplied equipment and services to the kingdom including three Sandown mine-hunter vessels, which had a sticker price of £100 million each.
UBS advised clients to buy VT shares this morning, on the hope that Al Yamamah Pt. 2 will provide similar opportunities. It noted that the original deal set out terms for the Saudis to buy six minesweepers; those extra orders may now be in the pipeline, it said. VT's training joint venture with BAE Systems will also likely benefit, UBS added.
VT shares ended the day ahead 10p to 430p.
For more on the deal, click here.
Sugar and starch producer Tate & Lyle was among the blue-chip fallers as analysts at UBS voiced concerns that the City may have been too optimistic about the company's artificial sweetner, sucralose.
"Whilst we accept that sucralose is difficult to value, we do believe investors should balance its high level of profitability and exciting growth potential with the risks of competitive entry, production disruption and the emergence of superior technology," UBS told clients in a note cutting its recommendation to "reduce" from "neutral".
Excluding sucralose, Tate & Lyle does not have sufficient competitive advantage to produce superior shareholder returns. Shares in Tate & Lyle were easier by 6p to 5560p.
For detailed information about Tate & Lyle, click here.
House builders led the mid-caps,with Wilson Bowden up 75p to £14.66 after it said reservations have picked up "significantly" in the last 11 weeks, and that its development division is on track for a record annual performance.
For detailed information about Wilson Bowden, click here.
This confirmation of a turn in the housing market lifted the rest of the sector, with McCarthy & Stome up 37.5p to 657p, Bovis Homes ahead 34.5p to 776p and Redrow firmer by 25.75p to 539p.
On a more speculative tack, rumours continued to circulate that the sector could be headed towards another wave of consolidation. Investors have been searching for the next target after Persimmon last month launched a £640 million offer for Westbury.
Similar hopes lifted Minerva (up 2p at 275p), with a mystery buyer thought to be building a stake in the property developer.
Track today's market movers by industry sector here.
Takeover gossip have been a prominent feature in recent days, as institutions close books, volumes dry up, the fund managers take to the pistes, and shares react more violently to comparatively small shifts in demand. Many of this week's rumours appear to have originated from the spread betters and contracts-for-difference punters, who can win and lose fortunes on the fluctuations without ever trading the underlying stock.
That appeared to be the story at SCI Entertainment, the publisher of Tomb Raider and Carmageddon, which ran back 22p to 593p after France's Vivendi said it was not interested in making an offer for the video-game producer. SCI shares were yesterday pushed to a record high on three days of gossip that it may be a target for a host of companies -- Apax, Vivendi and Midway Games were all mentioned.
Track SCI Entertainment shares here.
The other effect of the Christmas slowdown, cynical types may argue, was that it was a good day to bury embarrasing news. Was that the reasoning at Merrill Lynch, whose analysts cut HMV from its "buy" list? The team certainly felt it necessary to concede that their timing was not perfect.
Merrill has had retailer HMV on a "buy" recommendation since July 1, when the shares were 230.5p each. They have derated by 22 per cent since then amid concerns that high street retailers' music sales are in terminal decline, and supermarkets will keep eroding profit margins on the top-selling books, CDs and DVDs.
Such concerns are far from new, having been voiced at HMV's flotation in 2002 and many times since. However, even though Merrill argued that the worries are probably overdone, it conceded there is little sign HMV will be able to prove the argument any time soon.
Merrill said that, in the short term, footfall is weak, music and book release schedules are little improved over last year, and the DVD offering is actually worse compared with Christmas 2004. And for the longer term, it saw "a rather stubborn investor view of the prospects for high street entertainment and book retailing."
Merrill concluded: "Positive news is likely to be thin on the ground and so, despite the 31 per cent fall in the share price since the beginning of September, we see little scope for upside in investor sentiment."
For detailed information on HMV, click here.
AIM Resources was a star performer off the main market after the miner published a feasibility study on its Perkoa zinc project in Burkina Faso, West Africa. The study pointed to potential ore production of some 6.3 million tonnes, at a head grade of nearly 14.5 per cent zinc (the higher the grade, the smaller the cost of recovery. A 14.5 per cent head grade is apparently pretty high.)
Analysts at Seymour Pierce commented: "AIM has a number of other projects across Africa, but this is by far the most advanced. We expect the project to move up a gear over the next few months as the company lines up plant and equipment and therefore expect further newsflow to support the share price."
The broker valued AIM's project on a net present value of $147.7 million, or 16.7p a share, against a capital cost of $72.5 million. Shares in the company were ahead 0.75p to 3.25p, giving it a market cap of about £16.6 million.
On broker watch:
Bridgewell went to "buy" from "overweight" on Isotron, and started Harvey Nash with a "buy" stance and 55p fair value.
Next moved to "outperform" from "hold" at Seymour Pierce.
ABN Amro switched to "hold" from "add" on Hanson.
McBride was cut to "add" from "buy" at Dresdner Kleinwort.
Serco and Detica Group both went to "neutral" from "buy" at UBS.
Spirent was rated "hold" in new coverage at Deutsche Bank, which set a share-price target of 52p. The German broker also started Go-Ahead with a "buy" rating and target of £18.86.
And Wilmington was upgraded to "buy" from "hold" at Altium.
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