Footsie cheered by utility company takeover interest

Speculation over a bid for Northumbrian Water pushed up shares in the sector across the board, with Severn Trent and United Utilities adding 5 per cent and 3 per cent in the top flight.

The FTSE 100 Index overcame a difficult start to the session to finish 58.89 points higher at 5247.41 or 1.1 per cent with US markets also showing early gains.

Wall Street was cheered by better than expected results from oil giant Exxon Mobil, and a rise in US consumer spending for the third month in a row.

The US Institute for Supply Management manufacturing index showed the sector grew in January at a faster rate than expected. The report followed strong manufacturing data from China, Australia and the euro zone.

Shares of industrial materials companies gained on the strong global manufacturing data, with aluminum company Alcoa up 3.5 per cent at $13.17, and US Steel Corp adding 4.5 per cent to $46.41. The Dow Jones Industrials metals and mining index rose 4.2 per cent.

Better than expected manufacturing news also added to the mix in the UK as growth in activity reached a 15-year high in January, according to a closely-watched survey.

The pound fell as low as 1.58 against the dollar early on as nervous investors moved money out of commodities into the safe haven of the greenback, but clawed back above 1.59 later in the session. Sterling was little moved against the euro at 1.14.

The return of bid speculation in the water sector coincides with the removal of uncertainty caused by regulator Ofwat's review of prices for the next five years.

This process is coming to an end after all but one firm agreed to accept the recommendations.

Severn Trent shares rose 45p to 1170p and United Utilities added 15p to 5511/2p.

In the FTSE 250 Index, Northumbrian Water advanced 30.4p to stand at 289p, or 12 per cent, although a trading update in the afternoon gave no hint of any takeover interest. Ontario Teachers' Pension Fund is the rumoured buyer. Elsewhere in the top flight, British Airways cheered 63/4p to 213p after Ryanair raised its profits forecast and as reports suggested the European Union was moving considerably closer to giving its approval for BA's three-way tie-up with American Airlines and Iberia.

Engineering and aerospace giant Rolls-Royce also made some steady progress, adding 71/2p to stand at 4871/4p after Morgan Stanley and Royal Bank of Scotland both raised their target price on the company.

But fund management firm Schroders was the Footsie's top faller, losing 35p to 1211p, or 3 per cent, after a downgrade from brokers at Credit Suisse.

It was joined on the fallers' board by engineering and project management firm Amec, which shed 61/2p to 7511/2p despite news of an oil services deal off the coast of Brazil.

Footsie's oil and mining groups weighed early in the session as commodity prices fell, but BP later moved into positive territory after Exxon's figures boosted confidence ahead of annual results today. Shares added 73/4p to 5945/8p as crude prices followed equity markets higher.

Mining firms were on the back foot for much of the session on lower metals prices, although they bounced back as the dollar eased back against major currencies.

Vedanta Resources was the biggest gainer in the sector, surging 126p to stand at 2553p after analysts spied upside in the price through the potential spin-off of subsidiaries. The biggest Footsie riser was RBS up 21/2p to 347/8p.