Bid theories helped lift retailers as the FTSE 100 pushed higher for the seventh time in eight days.
The sector found demand after Société Générale tipped Debenhams as a potential private equity target.
Debenhams’ 12 per cent free cashflow yield and reduced debt make it vulnerable, said analyst Anne Critchlow.
A leveraged buy-out would make sense at 113p per share, 68 per cent above the current level, SocGen said.
That target was second only to Kesa Electricals , which could provide 150 per cent upside in the event of a leveraged bid, the French bank estimated.
Sanford C. Bernstein also saw takeover potential in the UK sector after private equity groups last month bought retailer Pets at Home.
Clothes retailers look particularly cheap with Marks & Spencer and Next trading sharply below historical multiples, Bernstein said.
The broker also argued that trading in the first half could be better than expected given improving consumer confidence and subdued unemployment.
Debenhams ended the day up 3.7 per cent to 67½p, while Kesa – recently mooted as a potential target for an international peer – added 2 per cent to 121p.
Among the blue chips, M&S closed up 2.8 per cent to 342p and Next added 1.1 per cent to £19.37.
Kingfisher , Bernstein’s top sector pick, put on 1.1 per cent to £19.37.
Meanwhile, Home Retail Group gained 2.9 per cent at 266p after Investec turned positive on valuation.
The wider market followed Wall Street’s lead in thin trading. The FTSE 100 ended up 0.6 per cent, or 32.58 points, to 5,276.64 as risers outnumbered fallers by 10 to one.
Man Group led the way, rallying 5.2 per cent to 239½p on a retread of speculation that the hedge fund manager could be a take-over target for BlackRock.
People familiar with the companies dismissed the gossip, which may have surfaced after BlackRock talked to Man about leasing London office space.
A more fundamental reason for the move, traders said, was that Man’s flagship fund held steady last week in spite of volatility in sovereign markets.
Barclays was up 2.9 per cent to 302¼p on a positive response to its results with UBS, Nomura, Merrill Lynch and RBS all issuing “buy” advice.
Ahead of results next week, Lloyds Banking Group rose 3.2 per cent to 50½p and Royal Bank of Scotland took on 1.9 per cent to 34p. Barclays’ numbers supported hopes that both banks can also report lower-than-expected impairment charges.
International Power reached a 16-month high, up 0.5 per cent to 329¼p, in spite of talk that GDF-Suez may turn its attention to an acquisition in North America. GDF this month halted talks with International Power about a merger of assets.
Shire put on 0.7 per cent to £12.89 after US competitor Genzyme warned that it was still struggling with production problems and would remain short of its Fabry disease treatment through April and May. The US drugmaker had previously said it would be able to meet demand by the second quarter.
British Airways added 3.6 per cent to 206¾p after Raymond James Equities added the stock to its focus list based on recovery hopes.
Publisher Reed Elsevier was up 1.5 per cent to 493½p ahead of results today, which will provide the City’s introduction to Erik Engstrom, the new chief executive.
JPMorgan upgraded Reed to “overweight” in advance of the numbers, saying the shares are at a 24 per cent discount to the historical average. “The first signs of improvement within different business units and reassurance that product investment within Legal is on track should be sufficient to drive a re-rating,” it said.
Stocks trading without dividend rights were the sharpest fallers. BP was down 2.7 per cent to 572½p and Scottish & Southern Energy declined 2.9 per cent to £11.49.
VT Group was up 4.5 per cent to 621½p on talk that Babcock International was poised to raise its offer to about 700p per share.
Source: Financial Times