Investors smiling on hopes of £12bn deals bonanza

Santander chairman Emilio Botin set the bulls running with his bid for Alliance & Leicester, which also set shares in Bradford & Bingley alight on hopes of a takeover bid.

Then came news from London-listed oil and gas explorer Imperial Energy that it was in talks with bidder ONGC of India, which analysts said could value the company at well over £1 billion.

That excitement was soon supplanted by strong rumours that FTSE 100-listed miner Kazakhmys was in merger talks with Russia's Metalloinvest, the iron-ore, steel and scrap metal specialist owned by Kremlin-friendly billionaire and substantial Arsenal shareholder Alisher Usmanov. A deal would value the Kazakh giant at over £7 billion.

To top it off, speculation gathered pace that ITV may receive a takeover bid worth well over £1.6 billion. Shares in ITV surged after Jon De Mol, head of Big Brother producer Endemol, said a merger of the broadcaster with Endemol "could make sense".

ITV rocketed to the top of the FTSE 100 leaderboard, banking stocks that made up the bulk of the gainers. A&L soared far above the offer price, suggesting that another suitor - potentially-Lloyds TSB or Clive Cowdery's Resolution - may wade in.

As well as being good news for shareholders, the bid action will provide respite for an army of investment bankers sitting on their hands in the bear market. Santander is being advised by Merrill Lynch while Morgan Stanley is acting for A&L.

The move also proves that Botin has managed to navigate Spain's largest bank through the credit crunch relatively unscathed. Investors were jubilant that his pursuit of A&L could signal some light at the end of the tunnel, with a wider round of consolidation now inevitable.

Rival Bradford & Bingley was one of the main beneficiaries as traders speculated that if A&L had proved tempting to Santander, B&B might likewise be able to find a suitor. The troubled buytolet lender faces investors on Thursday with its third attempt at a rights issue in two months. Its shares today climbed to within a whisker of the 55p cash call, up 5¾p at 53¼p.

But the entire banking sector benefited, with Barclays putting on 15½p to 283¼p, Lloyds TSB gaining 19½p to 295p, Royal Bank of Scotland up 6½p to 189¼p and HSBC 22p higher at 754¼p. HBOS, the other bank going cap in hand to investors this week, rose 7½p to 274p.

Hopes of a bidding battle at Alliance & Leicester at a time when the City is facing a dearth of deals improved the mood in the City and dragged the FTSE 100 out of bear-market territory. The index tumbled another 2.7% last Friday, but was up 96.4 points to 5358.0 today.

The markets had already received a fillip from reports from the US on the bailout of mortgage giants Freddie Mac and Fannie Mae.