Utility rumours raise spirits

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

The benchmark FTSE 100 Index overcame a testing start to the session to close 58.9 points or 1.1 per cent higher at 5,247.4 with markets across the Atlantic also showing early gains.

The index ended 0.8 per cent higher on Friday.

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.

Jimmy Hughes, market analyst at CMC Markets, said: "Markets were also given a boost by some better-than-expected manufacturing numbers this morning.

"UK manufacturing output reached a 15-year high in January as export orders surged and employment increased, lifting hopes that the UK is undergoing a sustained recovery.

"It's set to be a busy week with key economic and corporate data due for release both here and in the US."

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 1,170p and United Utilities added 15p to 551.5p. In the FTSE 250 Index, Northumbrian rose 30.4p to 289p, a gain of 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 6.8p to 213p after Ryanair raised its profits forecast and as reports suggested the European Union was moving 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 steady progress, adding 7.5p to 487.3p 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, shedding 35p to 1,211p after a downgrade from analysts at investment bank Credit Suisse.

It was joined on the fallers' board by engineering and project management firm Amec, which shed 6.5p or 1 per cent to 751.5p 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 7.7p to 594.6p 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 later as the dollar eased back against major currencies.

Vedanta Resources was the biggest gainer in the sector, surging 126p to 2,553p after analysts spied upside in the price through the potential spin-off of subsidiaries.

Among banking shares, Royal Bank of Scotland lifted 2.56p to 34.86p, making it one of the top flight's leading gainers in percentage terms, up 7.9 per cent. Lloyds Banking Group rose 3.3 per cent to 52.9p. Banks added the most points to the FTSE 100.

David Buik, partner at BGC Partners, said: "RBS is making very strong efforts to try and sell some of its assets. (The bank] has got a very strong business plan."