Market report: Monday close

ONWARDS and upwards, or time for a breather? City investors were undecided today, having seen the Footsie extend its run on Friday, buoyed by recent bumper profits from blue-chip companies and a high level of takeovers with the prospect of more to come.

Dealers say this is the best start to the year for the London market since 1998. But some of the more experienced hands reckon share prices have started running ahead of events and will soon come back to earth with a bump.

Most year-end forecasts for the FTSE 100 index range from 4700 to 5200. After hitting a two-and-a-half year high on Friday, it closed 2.4 lower at 5,041.8, with Wall Street making a cautious start this afternoon.

Speculators were again nibbling away at takeover favourite Allied Domecq, 11½p better at 533p. The Beefeater-to-Malibu drinks group has been linked with French rival Pernod Ricard in recent weeks. But sceptics say Pernod Ricard does not have the money for Allied, valued at almost £6bn.

Last week's hot tip for a takeover was Cadbury Schweppes but the shares fell 4¾p to 513½p today. BT rose 2½p to 211¾p as more than 100m shares changed hands. US broker Goldman Sachs has raised its recommendation from underperform to in-line following last week's thirdquarter numbers. Goldman says BT's underlying revenue performance is enjoying a minirenaissance, driven by strong demand for broadband and market share gains in information and communication technology.

Mobile phones operator mmO2 rose 1¼p to 123½p. Deutsche Bank has repeated its buy rating and lifted its target from 130p to 150p.

Mortgage lender Northern Rock came off its record high with a fall of 2½p to 819½p. US broker Morgan Stanley is raising its 12-month forecast from 850p to 912p. It attributes the move to superior growth and asset quality which suggests it should be on a premium rating.

Broker Numis Securities has drawn up a hit list of companies most likely to attract a bid from private equity firms. Top of the list are French Connection, down 7p at 316p, Homestyle, off 5½p at 118½p, and Thorntons, steady on 152½p.

Online auctioneer QXL ricardo jumped 232p to 1,077½p after the company's own management, in the shape of Tiger Acquisition Corporation, increased its terms in the face of a counterbid from Dutch outfit Beleggingsmaatschappij Florissant worth 800p a share. Tiger has now raised its offer to 1,000p, plus an additional litigation entitlement share that could be worth up to a further 1,000p.

Financial trading software firm Royalblue shot up 34p to 480p. Full-year recurring revenue, from brokers using its Fidessa equities trading platform, rose 27% to £37m and consultancy income has returned to growth. Pre-tax profits overall rose 8% to £9.9m. The firm wants to develop a platform for derivatives trading.

Aim-listed IT outsourcing services provider NetStore celebrated a move back into the black with a rise of 5p to 46p. The group reported interim pre-tax profits of £500,000 against a loss of £100,000 for the corresponding period last year and told the City it was confident of meeting targets for the full year.

Also on Aim, TEG Environmental firmed 5p to 42p after notching up its first contract since coming to market last summer.

The group has signed a three-year deal worth £925,000 with the City and County of Swansea to supply its in-vessel composting system.