Market report: Tuesday close

CITY investors were slaking their thirst today on a heady concoction of alcohol and takeover speculation as they celebrated news of the long-awaited takeover approach for Beefeater Gin and Canadian Club drinks supplier

French drinks giant Pernod Ricard has teamed up with US outfit Fortune Brands and is in talks with the Domecq board. The speculators say Pernod and Fortune could muster a bid of about £7.5bn within weeks.

News of the move sent Domecq shares soaring 96p to 633p and breathed fresh life into the stock market. The focus of attention quickly switched to other drinks companies, which were dragged higher by the latest turn of events. Scottish & Newcastle , often tipped as a takeover target, jumped 20p to 479½p, where it is capitalised at almost £4.5bn. Guinness owner Diageo put on 21½p to 779p while South African brewer SABMiller added 22p to 844p on the prospect of a crystallisation of brand values. The buyers also came in for Mitchells & Butlers , which led the second-liners higher with a jump of 11p to 354½p.

Takeover speculation drove logistics specialist Exel 22&12;p higher to a record 885½p. The shares have enjoyed a new lease of life on persistent talk of a bid from Deutsche Post, which made its views known to shareholders this week by seeking the go-ahead to issue more shares for money. Other bid favourites on the move were Rentokil Initial , up 7½p at 173½p, and Cadbury Schweppes , 14½p better at 542½p.

Share prices generally posted useful gains with the FTSE 100 index closing up 46.2 at 4942.9 as Wall Street opened higher. Sentiment was further underpinned by a softening of oil prices.

ICI rose 5¼p to 271p after US brokerage Morgan Stanley raised its recommendation from equalweight to overweight with an increase in the target price from 235p to 310p. It says the company's management is delivering market expectations. It does not believe the City fully appreciates ICI's achievements and reckons the shares, trading on a multiple of 10 times earnings, look cheap.

However, rival broker Credit Suisse First Boston is a seller of ICI. It is concerned about the rising cost of raw materials.

Mining giant Xstrata dipped 13p to 995p after an early mark-up. Broker Smith Barney has resumed coverage of the shares following the WMC bid with a buy rating and has jacked up its target price from 850p to 1250p.

Music publisher EMI jumped 6¾p to 244¼p after Deutsche Bank upgraded the shares from hold to buy. The bank reckons the music industry's transformation to digital has opened up whole new revenue streams.

The group is trading on 11.5 times earnings for 2007, a 15% discount to the sector. EMI shares fell in February after the group issued a profits warning highlighting falling sales.

Barclays advanced ½p to 548p as brokers dismissed reports that the bank has had merger talks with UniCredito Italiano. They say there is more logic to Barclays thrashing out a deal with South Africa's Absa.

Meanwhile, Dutch broker ABN Amro has upgraded Barclays, along with Bradford & Bingley , 3¾p better at 312½p, from reduce to hold because it believes the shares look cheap compared with the rest of the sector.

Lloyds TSB , 4½p dearer at 475½p, saw a line of 27.5m shares go through at that price.