Fuelled by a rise in BP, the benchmark index headed to its highest level so far this year.
By Rachel Cooper, City Reporter 7:02PM GMT 14 Dec 2010
Having been treated to a round of deals earlier in the week, investors were on the hunt for fresh takeover tittle-tattle. BP did the honours, gushing up 14¾ to 473.1p as traders pointed to vague speculation about a possible bid from rival Royal Dutch Shell.
As ever, such rumours come with a health warning and there were other factors helping BP.
The oil major sold its Pakistan oil and gas assets to Hong Kong-listed United Energy Group for $775m (£489m) as part of its strategy to sell off up to $30bn of assets to help cover the costs of the Gulf of Mexico oil spill.
Jason Kenney, an analyst at ING, said BP was well ahead of target on its divestment plan and reiterated his buy rating.
He added that Shell rumours may be based on BPs relative undervaluation and the attractiveness of BPs asset base. Never say never but a bid is unlikely in my view, he said.
Also helping BP was Credit Suisse raising its target price to 585p from 515p. However, analysts at Jefferies were more circumspect. They began coverage of BP with a hold rating and 475p target price. The broker said that although BP was cheap, it remained cautious on the stock while the key issue of the companys gross negligence for the Macondo oil spill remains unresolved, as we believe this has the potential to double the cost of the spill net to BP.
It will take several months before the final Macondo cost becomes clear to investors and we see little reason to become more positive on the stock while this issue hangs over it, said analysts.
Jefferies initiated on Royal Dutch Shell with a buy recommendation and £23.50 price target. Analysts believe the oil major is emerging after a long period of decline into what we see as a sustained period of growth.
Shell gained 28½p to £20.81½.
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