FTSE gains as investors seek bargains

The FTSE rallied on Friday as buyers returned to the market seeking bargains after Thursday's 150-point fall.

A rally on Wall Street helped underpin gains and by mid morning the FTSE 100 climbed 45.5 points, or 0.8 per cent, to 5,769.3. The mid-cap FTSE 250 added 61.8 points, or 0.6 per cent to 9,824.4.

"Thursday's bout of selling is looking a little overdone and some buying up of keenly priced stock should lend a degree of support, and the positive finish on Wall Street last night also stands to add cheer," said Matt Buckland, trader at CMC Markets.

Miners, which have lost in recent sessions on fears demand will be damped by a slowing economy, were back in the M&A spotlight.

Xstrata raised its cash offer for Resource Pacific, the Australian coal producer, by 12 per cent to A$3.20 a share, valuing the company at A$1.08bn.

However, the Switzerland-based miner remained a target itself after Brazil's state owned bank BNDES suggested any bid from local mining group Vale would face no domestic regulatory problems. Xstrata shares climbed 1.3 per cent to £38.70.

Meanwhile, reports that China's state-owned aluminium smelter Chinalco was seeking regulatory approval from Australia before increasing its stake in Rio Tinto, cast further doubt on the BHP Billiton (NYSE:BHP) bid.

BHP offered 3.4 of its shares for every Rio share this week, valuing Rio at around $147bn. The board at Rio Tinto rejected the offer. BHP shares were up 0.6 per cent to £14.78, while Rio climbed 0.3 per cent to £52.40.

Anglo American rose 3.8 per cent to £29.88 after De Beers said its contribution to Anglo's underlying earnings rose 5.6 per cent to $239m in 2007. Anglo holds a 45 per cent stake in the world's largest diamond producer.

Biffa, the waste collection service, topped the FTSE 250 with an 11.8 per cent rise to 366½p after it agreed a £1.2bn offer from a consortium of private equity companies.

Montagu Funds, Global Infrastructure Partners and UCIL jointly offered 350p a share, Biffa added that a third party was conducting due dilligence and might put in a rival bid.

Premier Foods, however, was at the bottom of the pile on the mid-cap index - down 20 per cent to 97½p - on concerns over the company's level of debt.

Darren Shirley and Clive Black at Shore Capital said the company was not in a comfortable cash position. "Premier does not have the rating to easily or attractively raise equity to deleverage its balance sheet, while we believe the debt and pension deficits are a deterrent to trade or private equity interest," the analysts added.

Compass Group, the world's biggest contract caterer, gained 4.3 per cent to 327¼p after first-quarter operating profit came in ahead of expectations. The company said it was offsetting food price inflation through cost cutting and higher pricing.

GlaxoSmithKline extended its losses following the drugmaker's profit warning on Thursday. The company highlighted the challenges it faced from manufacturers of cheap, generic drugs. The stock shed a further 3.3 per cent to hit a three-year low of £10.42.