Market Report: BG lit up by talk that Shell will pounce on it

It may be one of the oldest rumours in the stock market, but talk of a bid for BG Group once again got punters piling into the company yesterday. Shares in BG finished 10p higher at 650p as dealing rooms were set alight by speculation that Royal Dutch Shell is about to pounce on its smaller rival and is willing to pay up to 720p a share to win control of it.

Such a move would value BG at £24bn. Although that is a punchy figure, analysts believe Shell, which has a market capitalisation of £113bn, will certainly be able to manage it. The oil giant is known to be keen to secure new reserves, and BG's portfolio is an exciting one. At the end of the last month, Shell, which was 10p higher at 1,793p yesterday, was also rumoured to be running the slide rule over Premier Oil.

Elsewhere, talk of a mega-deal in the banking sector continued to do the rounds of the Square Mile. Barclays, 9p to 671p, is increasing seen as a potential predator as opposed to prey - the role it has traditionally been cast for. On Friday, gossips suggested the UK's third-biggest bank might be interested in a bid for ABN Amro, the Netherlands' largest banking corporation.

Meanwhile, Bank of America, which is regularly touted as being interested in swallowing Barclays, indicated over the weekend it was not interested in making any acquisitions at present. Kenneth Lewis, who has spearheaded more than $90bn (£48bn) of purchases at Bank of America, indicated he is now focused on growing the business organically. Lloyds TSB fell 0.5p to 529p, HBOS retreated 15p to 1,035p and Northern Rock slipped 5p to 1,160p.

HSBC bucked the negative trend in the sector. Even a warning from analysts at Deutsche Bank, that the group is among the most exposed of Europe's banks to a US housing market downturn, failed to weigh on the shares, which finished 1p better at 957p. Deutsche pointed out that 15 per cent of HSBC loans come from US mortgage-related lending. The next most exposed is Royal Bank of Scotland, with 7 per cent of its loan book in US housing. Its shares did react, falling 7p to 1,797p.

EMI lost 2.25p as 252p as JP Morgan suggested the stock is probably worth shorting before a forthcoming trading statement. The US broker expects the music group to update investors towards the end of next month and warned it might disappoint the City. JP Morgan said: "We remain very cautious on the fundamentals for the recorded music sector as a whole." It also pointed out that EMI is up against very difficult year-on-year comparatives after the phenomenal success of bands such as Coldplay and Gorillaz in 2005.

SMG dropped 2p to 74.74p after Dresdner Kleinwort said it views a merger between SMG and UTV as unlikely. The German broker argued that the media group faces an uphill struggle now that any possible merger activity looks doubtful, and so downgraded its rating on the shares to "reduce" from "hold". MFI Furniture, steady at 87.25p, said it remained locked in talks with Merchant Equity Partners aimed at the sale of its retail business to the venture capital group.

In the world of smaller companies, Wogen slumped 13p to an all-time low of 77.5p after the metals trader warned its full-year results would fail to meet expectations. The group deals in metals which are not traded on the London Metal Exchange. It has suffered a slowdown in business since it posted its June interims, although management did say conditions had stabilised this month. Wogen's management assured investors it would pay a final dividend of 4.9p a share despite the drop in earnings.

GoIndustry ticked 0.25p higher to 15p as the eBay of the industrial equipment and machinery world broke into the black for the first time.

The group registered a first-half operating profit of £200,000, compared to a loss of £1.5m last year. Brokers expect this figure to reach nearly £1m by the end of the financial year. When a factory is decommissioned or relocated to a low-cost country, as is increasingly the trend, GoIndustry will help auction all surplus industrial machinery on its website and global database of 1 million potential buyers for such for equipment.

Fonebak advanced 9p to 139.5p on the back of a major contract win from DSG International, the owner of the Currys and PC World chains. The group is a specialist in recycling mobile phones in the West for resale and redistribution in Third World countries.