FTSE in black as bid talk outweighs recovery fears

Investors welcomed Cairn Energy's plans to sell 51 per cent of its Indian operations to Vedanta Resources for more than 5bn – promising a multi-billion windfall for shareholders.

But Aviva's rejection of a 5bn move for its general insurance arm by rival RSA was poorly received, leaving both down more than 2 per cent. The Footsie crawled 0.66 points ahead to 5276.10 after being in the red for much of the session.

Dismal growth figures from Japan – showing growth slowing to 0.4 per cent between April and June, suggested a stalling global recovery as the nation lost its place as the world's second biggest economy to Asian neighbour China.

A mixed session in Asia was followed by a sluggish start for the Dow Jones Industrial Average after housing and manufacturing data disappointed, although Wall Street crept into positive territory later.

US home builder sentiment fell for a third straight month in August to its lowest level in nearly one and a half years, pointing to a weak housing market as the economic recovery loses steam.

Further signs that the recovery from the longest and deepest recession since the 1930s was taking a step back were contained in another report yesterday that showed below-forecast growth in manufacturing activity in New York state, with new orders and shipments tumb-ling.

Although the data remains weak, most economists still do not believe that the economy is slipping back into recession.

The pound enjoyed a decent session against the euro, gaining to 1.22, and edged up to 1.57 against the dollar in a thin summer session.

"Aside from the Vedanta/Cairn India deal there was little around on the local agenda to provide much meaningful direction," IG Index's senior sales trader Yusuf Heusen said.

In London shares in both firms headed the leaderboard on news of the deal, which could land Cairn Energy up to 5.5bn for the stake in its Indian arm. Cairn - which will retain a stake of at least 11 per cent in the Indian business after the sale – added 247/8p to 4931/4 or 5 per cent. Vedanta Resources was close behind, up 100p to 2153p.

The leading faller was Aviva, down 91/2p to 3777/8p after snubbing RSA's proposal to buy its home and motor insurance operations in the UK, Canada and Ireland.

Aviva said it had no intention of splitting its general insurance and life assurance divisions, although it added that it was willing to address investor concerns over the company's strategy after recent underperformance of its shares. Suitor RSA saw shares dip 27/8p to stand at 1241/2p, or 2.5 per cent.

Meanwhile, shares in oil giant BP were down as investors reacted to an announcement from the state of Alabama that it is suing BP and two other companies over the Gulf of Mexico oil disaster.

Shares in the beleaguered firm were 65/8p down at 4093/4p, after the state said it was making the claim against BP, Halliburton and Transocean for the "catastrophic harm" caused by the crisis. BP has made provisions of more than 20bn for the spill so far.

Communications provider Inmarsat's shares also shed 21/2p to 686p as challenging trading in its core maritime business continued to weigh on the stock.

The biggest Footsie risers were Cairn Energy, Vedanta, African Barrick Gold up 131/2p to 5621/2p and Xstrata ahead 183/8p to 1014p.

The biggest Footsie fallers were Aviva and RSA.