Investors take flight on fears of Vodafone getting caught in bid war

Vodafone, a major constituent of the Footsie as one of Britain's biggest companies, closed down 2.25p to 143.75p after a report suggested it was mulling a multi-billion pound bid for India's fourth-largest mobile phone operator.

Investors took flight amid fears Newbury-based Vodafone might be drawn into an expensive bidding war as it looked to broaden its reach beyond the cramped European market.

Jimmy Yates, a trader at CMC Markets, said: "The FTSE fell lower during this afternoon's trading with Vodafone one of the main reasons for the fall after the mobile telecommunications giant announced they were still deciding weather to make a bid for Indian firm Hutchison Essar.

"Strong oil prices also weighed on the markets, as volume was thin in the run up to the Christmas holidays."

The FTSE 100 closed down 14.9 points at 6,183.7. However, the index is currently up 10 per cent on where it started 2006.

The markets were little affected by US gross domestic product, which expanded at a 2 per cent annual rate in the July-September period.

Smith & Nephew gained 3.4 per cent, or 17p, to 537p after reports said that it might be a bid target for the team behind this week's takeover of US rival Biomet.

Oil major BP was also a depressant on the market as the price of crude oil slipped to $62, despite data from the US, which showed a larger-than-expected decline in crude stocks. BP was off 2.5p at 567p.

Royal Dutch Shell also, eased a penny to 1,790p, after reaching a deal whereby Russian state-controlled Gazprom will take majority control over the Sakhalin-2 project.

Cruise operator Carnival rose 71p to 2,536p as it reported strong earnings growth, despite soaring fuel costs.

Sentiment was mixed among the banks after the flurry of recent trading updates.

HBOS fell a penny to 1,118p, Royal Bank of Scotland was 7p cheaper at 1,970p, while Alliance & Leicester firmed 11p to 1,125p.

Among second-tier stocks, there was concern for oil and gas firm Burren Energy following the death of the president of Turkmenistan, Saparmurat Niyazov.

Analysts suggested that Burren had invested heavily in the former Soviet republic and Niyazov's death might lead to uncertainty in the region.

Despite others speculating that the incident would not adversely hit Burren's business and its work in the area, shares still lost 45p, or 5 per cent, to stand at 840p.

Sentiment in the retail sector was undermined by a warning from Poundstretcher-owner Instore that losses would be worse than expected.

Shares in Instore were unchanged at 18p as the company insisted that recent sales had been better, but Comet-owner Kesa was down 8p to 346p, Woolworths was off half a penny to 33p, and WH Smith sank 5.5p lower to 379p.

HMV was offered some respite after its profits warning on Wednesday had jolted the shares. Yesterday, they edged up a quarter of a penny to 146.75p, while Marks & Spencer also avoided the sell-off, up 12p to 714p.

Les Ames, trader at brokerage WH Ireland, commented: "Apart from Smith & Nephew and Vodafone, its been an uninspiring sort of day."