City lower as recovery fears continue to hit sentiment

The London market suffered its third day of declines yesterday after signs of a revival in takeover activity in the oil and gas sector failed to overcome increased fears of a slowdown in the economic recovery.

Without any economic data to turn sentiment around, early gains in the FTSE 100 Index were short-lived with the top flight down 16.01 points to 5195.28.

This was despite more gains for gas explorer and production group BG as speculation continued to swirl in the market that two possible bidders were willing to pay at least 16 a share, valuing the company at around 54bn.

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BG rose 6 per cent, or 611/2p to 10911/2p, contributing to a 10 per cent improvement over the last week, as traders pondered the possible interest.

Royal Dutch Shell, ExxonMobil and Petrobas were among the names being mentioned in the City.

The speculation comes in the same week that mining giant BHP Billiton launched a bid worth 40 billion US dollars (25bn) for Canada's PotashCorp, which is the world's biggest fertiliser producer.

In other takeover developments, Korea's state oil company launched a hostile bid worth 1.7bn for UK explorer Dana Petroleum.

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Dana has so far rejected the interest but its shares rose 6 per cent, or 103p to 1798p, as Korea National Oil Corporation said 48 per cent of shareholders backed its proposal.

Cairn Energy, which has agreed to sell most of its stake in Cairn India in a deal with Vedanta Resources worth up to 8.5bn US dollars (5.5bn), saw its shares rise 3/4p to close at 4601/8p, while Tullow Oil added 12p to finish the day at 1296p.

But continued economic uncertainty in Europe and the United States weighed on investors minds, particularly after France cut its economic growth forecast for 2011 from 2.5 per cent to 2 per cent.

French President Nicolas Sarkozy also reasserted the need to reduce the government deficit from 8 per cent to 6 per cent. In the currency markets, the pound extended its recent

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weakness against the dollar to stand at 1.55 while it recouped earlier losses against the euro following the surprise announcement in France.

Wall Street's Dow Jones Industrial Average opened weakly and joined the Standard & Poor's 500 index on the way to a second weekly decline, as concerns over poor US employment and manufacturing data lingered.

Wall Street had tumbled to its lowest close in nearly a month on Thursday after more weak data strengthened the argument that the economy is slowing again.

The negative sentiment in the market carried over to yesterday's trading, which is being influenced by options activity ahead of expiration at the end of the session.

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Larry McMillan, president of McMillan Analysis, said most of the August S&P 100 index open interest in in-the-money, or profitable, call options has disappeared, either through traders rolling or exercising their positions.

"As a result, there is a negative bias to the expiration now," he said, explaining the move lower.

Building supplies firm Wolseley, which generates a large slice of its business in North America, fell 3 per cent, or 44p to 1280p.

Outside the top flight, shares in All Bar One owner Mitchells & Butlers fluctuated after it agreed to sell 333 pubs to a private equity firm as part of its withdrawal from the drinks-led and late-night high street bars sector.

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The disposal for 373m will give Mitchells greater firepower to accelerate the expansion of its core food-led business, analysts said.

Shares dipped 2p to 2933/4p.

The biggest Footsie risers were BG Group, African Barrick Gold ahead 101/2p to 5721/2p, Tullow Oil and Cairn Energy.

The biggest Footsie faller was Kazakhmys down 47p to 1141p.

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