Market report: Thursday close

SAINSBURY's chief executive Justin King has another month to work on his plans to revive the troubled business, but City punters are betting his first task may be to defend the group from a takeover.

The supermarkets giant soared to its highest level for more than a month today, surging 5% or 13p to 271p, as speculation mounted that bidders are beginning to circle.

Dealers believe retail tycoon Philip Green or US retailer Target could bid for the group, which will next update investors on trading when King reveals his strategy on 19 October.

He made his second major appointment since joining the business today, hiring former Safeway operations director Lawrence Christensen to sort out the problems dogging its supply chain.

The wider FTSE 100 index hit two-month highs by climbing 16.6 points to 4518.6 in a subdued session as little more than 600 million shares traded in the first four hours.

Banco Santander Central Hispano looks set to fire off another salvo in its war of words with HBOS after it emerged today that Abbey National may not be the only UK bank the Spanish are after.

Reports in Spain suggest BSCH is also eyeing Alliance & Leicester and Bradford & Bingley and indicate the bank is far less worried about a competition probe into its intentions than many think.

Alliance & Leicester rose 5p to 905p and Bradford & Bingley lost 1/4p to 290p.

Abbey recovered from early losses to rise 1 1/2p to 605p, the year-high it reached yesterday on speculation HBOS is finally poised to launch its bid.

BP and Shell were among the others making progress as CSFB upgraded the sector to market weight and raised its oil price estimate for next year from $25 to $34 a barrel.

BP, up 2 1/4p to 505 1/4p today, is one of the investment bank's top picks with a target of 565p. It has slapped a new target of 405p on Shell, which climbed 4p to 414p.

Diageo topped the FTSE 100 fallers, dropping 4% or 8p to 675 1/2p, after house broker Cazenove downgraded to in-line from buy following the group's interim results.

Iraq reconstruction contractor Amec was another heavy faller as investors took profits despite firsthalf results that showed underlying first-half profits rose 5% to £37.5m. Shares in the group, now pulling away from the lowmargin construction industry, dropped 5 1/4p to 314 3/4p after hitting a two-year high yesterday.

It was a better day for chip designer Arm, which closed down 1/4p to 81 1/4p, after timely upgrades from Merrill Lynch and Dresdner Kleinwort Wasserstein. Arm has plunged 22% since revealing its intention to bag US microchip parts maker Artisan last month on fears it may be paying too much, but both stockbrokers feel the shares have dropped far enough.

Elsewhere, packaging materials supplier Molins plunged 6%, or 10p to 147 1/2p, after slumping into the red with a £7m first-half loss and warning it may not pay a full-year dividend.

Specialist leather maker Pittards dived 11%, or 2 1/2p to 155p, after reporting a first-half loss, announcing the departure of chief executive John Pittard and applying to join Aim.

Oil minnow Emerald Energy rose 1 1/2p to 109p as the group signalled it was ready to head out on the acquisition trail. Its first-half earnings rose 259% to £902,000.

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