Takeover talk fails to lift the Footsie

The group leapt 10 per cent as speculation suggested its suitor was considering whether to return with a higher offer after a 7 billion proposal was reportedly rejected several weeks ago.

But the wider market remained in the red, closing down 28.03 points or almost 0.5 per cent at 5,956.3 as Wall Street also lost ground in early trading.

The Dow Jones Industrial Average fell more than 70 points soon after opening, mirroring declines across the UK and Europe amid renewed sovereign debt fears and concerns over demand in China.

In currency news, the pound clawed back from weakness against the dollar after Halifax said house prices fell 1.3 per cent during December. Sterling rose to $1.56, but remained down against the single currency at €1.2.

Investor hopes of a takeover battle for Smith & Nephew provided much of the excitement among stocks.

One analyst estimated the group could fetch 9 a share, valuing it at around 8bn. Its shares closed 62p higher at 712p.

A pair of Scottish life science companies also enjoyed a fruitful day after each reported that their annual turnover would pass the 100 million-mark.

Galashields-based drug developer ProStrakan jumped 11.4 per cent or 11.75p to 115.25p after it also received regulatory permission to sell one of its cancer pain-killing medicines in the US, while Dundee-based medical testing kit maker Axis-Shield ended the day up 7p or 2.7 per cent at 270p having said it was on course to recommend its maiden dividend.

The stock had touched 278p earlier in the session.

But commodity stocks weighed on the top tier as miners came under pressure amid worries over China's economy, while Portugal is the latest country to take centre stage in the eurozone debt drama.

Yusuf Heusen, senior sales trader at IG Index, said: "With Italy, Portugal and Spain bond auctions looming this week, investors are mindful that the risk of another European sovereign debt crisis has not gone away."

Investor attention was also focused on the retail sector after the latest updates from supermarket group Morrisons and department store chain Debenhams.

Morrisons impressed analysts after reporting like-for-like festive sales growth of 1 per cent for the six weeks to 2 January, slightly better than most forecasts.Shares eased back after earlier gains to finish 1p higher at 271p.

Debenhams dipped into negative territory, down 1p at 73.3p, after the department store operator estimated the effect of the snow cost it up to 3 per cent in like-for-like sales for the 19 weeks to 8 January, leaving same-store sales for the period down by 1.3 per cent excluding VAT.

Online grocery group Ocado was also in the red despite saying it had outperformed market expectations with a 26.7 per cent leap in gross pre-Christmas sales.

Shares declined 5p to 181p in the FTSE 250, although the stock is also giving back recent gains that have seen it rise to record highs since its flotation last summer.