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Talk that Royal Dutch Shell was eyeing up BG Group put the focus on big oil today.
The rumour — which regularly does the rounds on a quiet day in the City — was sparked this time by speculation that Australian oil giant Santos may receive a bid.
BG and Santos are both major forces in the lucrative gas coal-seam sector in Queensland, where Shell is thought to be interested in extending its operations. The oil titan has already teamed up with Arrow Energy in the region, but a takeover of BG would dramatically increase its hold there.
Santos is believed to be considering a merger with Origin Energy, in a deal which would be worth £8 billion.
Traders said that they had heard the rumour of a BG bid from Shell too many times, but the benefits of a deal are apparent: BG has gas as well as oil interests and there are likely to be fewer obstacles to a takeover than if Shell targeted an Aussie operation.
The takeover talk pushed BG onto the FTSE winners board, rising 22p to 1074p. The rest of the sector was down as the price of crude retreated slightly. BP was off 2¾p to 502½p and Royal Dutch Shell fell 5p to 1560p.
The FTSE's winning streak appeared to have run out of steam today as losses from the miners weighed on shares and investors pocketed profits.
The benchmark dropped 17.53 points to 4463.64 despite late gains in Wall Street last night.
Volumes were exceptionally light in another slow summer day for traders. Investors were once again turning to more defensive stocks, with tobacco, utility and pharmaceutical stocks on the up.
Miners, which have rallied sharply this week on the back of rising raw material costs, lost their shine today. The City was disappointed with BHP Billiton's production statement especially figures on iron ore output. The mining behemoth was cautious on global demand for metals and said that China's enormous stockpiles mean the metal-hungry nation is no longer making mega orders.
Investec cut its rating on BHP's shares from buy to hold, pushing them down 46p to 1484p.
BHP's caution combined with a weaker dollar to send the rest of the mining sector lower. Kazakhmys was the Footsie's biggest dud, 38½p cheaper at 718p, while copper producer Lonmin lost 7p to 589p.
Meanwhile, shares in satellite broadcaster BSkyB hit a 12-month high of 513½p — up 4½p — ahead of its full-year results at the end of the month.
Despite concerns that square-eyed subscribers would give up their expensive TV packages to cut costs, Sky is tipped to report a robust set of new subscriber figures, with its £49 box set offer driving growth.
JP Morgan has jacked up its rating on the shares to neutral from underweight and hiked up its price target from 500p to 575p. The broker says that the next consultation paper from media watchdog Ofcom is not likely to come until next year, so all eyes will be on Sky's results instead. Sky is fighting regulators' plans to force it to offer its football and film channels to rivals at knock-down prices.
More than 95% of GKN's new shares were snapped up after its £423 million cash call. Word in the City is that the small rump of 39.3 million unwanted shares were placed in the market at 90p this morning by JPMorgan Cazenove and UBS. The engineering components and car-parts maker raised the money to cut its debts and claw market share from ailing rivals.
Better-than-expected numbers last night from its customer Caterpillar, the US machinery maker, gave a boost to the shares which added 5½p to 94p
The rights issue at pubs group Marston's proved a little less popular among investors — with 91% taking up their shares in the £176 fund raising. The Pedigree brewer has come under fire for raising the money to fund buying new pubs rather than shrink its £1.2 billion debt mountain.
A fifth of shareholders voted against the fund-raising proposal earlier this month, partly because of the hefty fees the company paid for the cash call. Marston's shares dropped 4p to 87½p, making it the biggest loser among mid cap stocks.
Cadbury added to yesterday's gains, rising a penny to 555p after Panmure Gordon said the maker of Dairy Milk chocolate could find a suitor in Kraft. The US food giant is said to be keen on growing its confectionery arm and Cadbury's strength in emerging markets may make a tempting target.
