Rio Tinto pours cold water on BHP merger

Banks, property groups and mining companies underpinned the blue-chip index's strong performance, which was the FTSE 100's third-highest rise this year. However, Rio Tinto did not fare as well as some of its rivals. The shares perked up 188p – or 8pc – to ?25.36, while peers, such as Anglo American, made much better percentage gains. Anglo American jumped 145p – or 12pc – to ?13.40. On Thursday, ING published a note in which it appeared Rio Tinto moved to dampen rumours that it might be open to talks with BHP Billiton, up 40 to 416?p, about revisiting merger negotiations. Over the last week, speculation has been mounting that BHP Billiton is keen to engage with Rio Tinto about a 2.5-for-1 share offer for its rival. However, under Takeover Panel rules, BHP Billiton cannot make a formal offer for Rio without a recommendation from the latter's board. On Wednesday, ING held a mining forum entitled East Meets West, attended by several executives from key players in the sector. The broker subsequently published a report on the event to clients. ING quoted Rio Tinto executives as saying: "There have been no discussions with BHP Billiton and there are no plans for discussions with BHP Billiton." Meanwhile, most mining companies registered double-digit percentage gains as metal prices rallied alongside world stock markets. Kazakhmys topped the blue-chip leaderboard, rising 68 – 17pc – to 459?p. Citigroup upped its price target on the company from 315p to 396p. Vedanta Resources also perked up 101 to 793?p and Eurasian Natural Resources Corporation rose 65? to 514p. David Jones, chief market strategist at IG Index, said: "Today's fresh highs for the year could bode well for further strength yet to come, as some take the view that the commodity burst has been overdone." Overall, the FTSE 100 jumped by 169.36 points to 4124.97 as a mood of optimism engulfed dealing rooms and trading floors. The FTSE 250 surged by 275.1 points to close at 6816.12. James Hughes, analyst at CMC Markets, said: "An upturn in the UK housing market, an increase in US factory orders and confidence emerging from the eurozone, where the European Central Bank went with just a quarter-point rate cut, is all helping drive the demand for risk." Several banks made it on to the leaderboard. Royal Bank of Scotland rose 3.1 to 28.2p and HSBC climbed 48 to 459p. Property companies were also in demand amid talk of a short squeeze. Liberty International, which has fallen significantly in recent days on fears that its refinancing plans have stalled, gained 35? to 428?p. Elsewhere, British Land put on 40 to 416?p and Hammerson climbed 24? to 283p. Only 11 of the blue-chips ended the day in negative territory. They included gold miner Randgold Resources, which took the wooden spoon, falling 175p to ?37.08. Lloyd's of London insurer Amlin was also off 4? to 348?p after a broker downgrade. Credit Suisse slapped an "underperform" rating on Amlin and argued that the insurer should not bid for smaller rival Chaucer, which is being sold after receiving takeover approaches earlier in the year. Merryleas Hyde, an analyst at Credit Suisse, wrote: "Any combination of the two businesses is unlikely to bring significant benefits to the Amlin franchise. We view this potential transaction as an expensive means of acquiring diversification benefit, which would enable the combined entity to write more of the higher-margin catastrophe business." Chaucer fell 1? to 43?p. With the blue-chip index running at full throttle, bid talk was back in the air among the second-liners as traders looked to capitalise on yesterday's upward momentum. One rumour doing the rounds was that Siemens is interested in buying Spectris, up 45? to 474p. Invensys, up 5.6 to 178.6p, has also been cited as a potential target by dealers. Ladbrokes jumped 10 to 200?p amid talk that a consortium of Irish tycoons, such as JP McManus and John Magnier, may be interested in the company. Currency trader Joe Lewis once held a large stake in Ladbrokes, so some traders suggested the Irish could team up with the Bahamas-based billionaire. Housebuilder Taylor Wimpey topped the FTSE 250 following reports that the company had reached a debt deal with its creditors after months of negotiations. The shares gained 5? to 29p. Barratt Developments also perked up 18 to 107p. However, Premier Foods dipped ? to 36?p after several analysts poured cold water on talk that Kraft may be interested in bidding for some or all of the company. Meanwhile, online gambling company 888 Holdings fell 6? to 95?p as broker Jefferies downgraded the company from "buy" to "hold". William Birch, analyst at Jefferies, said: "Growth has halted abruptly as the recession and currency devaluations impact player behaviour." Partygaming also lost 17? to 223p. DEALS AND DEALMAKERS Several other interesting titbits emerged from ING’s mining and metals forum. Xstrata, up 57 to 567?p, is “happy” with its stake in platinum miner Lonmin, up 71p to ?15. It has found Ian Farmer, Lonmin’s new chief executive, “approachable” and Xstrata has developed a “good relationship” with him. However, the company “admitted that it overpaid for the 25pc position”. On a longer-term basis, Xstrata will either take over the company or sell out of the position, said an ING note out on Thursday.