Market report: Thursday close

DRINKS giant

Guinness maker Diageo, down 2p at 778p, refused to confirm reports that it has already approached Bacardi and other drinks groups over forming a consortium to bid for and break up Allied. A spokeswoman said: 'This is market speculation which I cannot comment on.'

But Diageo last night said it expects to issue a $900m (£472m) bond before July, citing 'the pace of consolidation' in the industry which meant it 'expects to continue to evaluate acquisitions that complement its existing premium drinks brands'.

Allied has acknowledged receiving an approach from Constellation Brands, the world's largest winemaker which also owns Corona beer. It has teamed up with US consumer goods group Brown-Forman and private equity group Lion Capital.

This consortium is looking to counter an agreed £7.4bn bid for Allied from French group Pernod Ricard and Fortune Brands of the US, which together have made a cash offer of 670p a share.

Diageo would face major regulatory problems if it bid for Allied, but it cannot afford to sit back while others-carve up such a major portfolio of top drinks labels. Diageo chief executive Paul Walsh said earlier this year that the group would not bid for Allied.

Blue-chips ran out of steam after an early mark-up while second-liners extended yesterday's heavy falls as liquidity dried up. The FTSE 100 index closed just 0.8 points higher at 4790.2, while the FTSE 250 was down a further 89.9 at 6738.8.

On Wall Street this afternoon, the Dow opened lower after economic growth slowed to its lowest in two years. Jobless numbers were up and so was inflation.

Biggest faller on the day was telecoms equipment supplier Marconi, which dropped 184p, or nearly 40%, to 298p after being left off the list of preferred suppliers for BT's 21st Century Network project.

Drugs giant GlaxoSmithKline jumped 79p to 1320p after resolving its dispute with the US Food and Drug Administration over the manufacture of its anti-depressant Paxil CR and diabetes treatment Avandamet at its plant in Puerto Rico.

Glaxo has also agreed to pay SkyePharma, up 4½p at 54¾p, a one-off $10m and to increase Paxil royalties from 3% to 4% of net sales. Rival AstraZeneca rose 10p to 2,290p on the back of firstquarter profits.

P&O, steady at 271p, admits it is still having a shocking time on the cross-Channel ferries, with passenger numbers down 31%. However, the ferries are only a small part of the P&O empire and the group said in a trading statement that its international ports business was doing well.

UBS has cut its target price for B&Q owner Kingfisher, down 6¼p at a new low of 247½p, from 300p to 280p in the wake of yesterday's profits warning. WestLB has downgraded from outperform to neutral and reduced its target from 320p to 280p.

It was the first day on Aim for Coal International, a cash shell that plans to invest in coal mining. It has been spun off from Cambrian Mining, down 1p at 139½p. Broker Williams de Broë has raised about £20m for the company after a placing at 75p. The shares settled at 78½p.