City in a whirl over BSkyB's future

LONDON FTSE 100 CLOSE 5,929.16 -61.42

BSkyB's on-off takeover saga and renewed fears over the spread of Europe's debt crisis led to a dramatic session in the City yesterday.

Satellite broadcaster BSkyB was down by a further 5 per cent following losses last week, but the fall of 34.75p to 715.25p was a modest pull back on earlier in the session when City commentators predicted that News Corporation's bid for the broadcaster was dead in the water.

Rupert Murdoch's News Corp stated its intention to fight on by withdrawing an offer to hive off Sky News as a separate company and will instead engage with the Competition Commission.

Panmure analyst Alex DeGroote had said earlier in the day that he saw just a 10 per cent chance of NewsCorp success. At some 715p, shares are broadly in line with the price that Murdoch's company originally proposed last June when it revealed its interest in bidding for the outstanding 61 per cent of BSkyB.

As well as a late revival in the possibility of a takeover, many analysts recommended buying the stock on its own merits.

Sam Hart, at Charles Stanley, said: "A share price of at least 700p seems justified on fundamentals alone. We think the shares look increasingly good value."

The FTSE 100 Index finished 61.42 points or just over 1 per cent lower at 5,929.16, with some of Britain's biggest banks more than 3 per cent cheaper on worries that larger countries such as Italy and Spain could follow Greece into the financial mire.

David Jones, chief market strategist at IG Index, said: "It's been an ugly start to the trading week as eurozone concerns kept equities sliding all day long."

The slump in banking shares amid fears over the sector's exposure to a debt crisis in Spain and Italy saw Barclays slide 9.3p to 233.95p, while Royal Bank of Scotland fell 1.5p to 35.7p and Lloyds Banking Group dropped 1.7p to 44.8p.

Ongoing uncertainty over a Greek debt default added to the pressure on the euro, which fell below the $1.40 mark for the first time since May.

The pound also made progress against the single currency at €1.13, but slipped by more than 0.5 per cent against the dollar on fears that the UK economy has contracted in the second quarter.

Other high-profile fallers included insurer Aviva, which is heavily exposed to continental markets and dropped 16.7p to 419.1p.

One of the biggest rises came from International Power as analysts considered that the Australian government's proposals on targeting CO2 emissions would have a negligible impact on earnings.Shares were 7.8p higher at 309.1p.

Outside the FTSE 100 Index, shares in Northumbrian Water jumped 5 per cent - up 21.4p to 447.7p - after the company said it had opened its books to Cheung Kong Infrastructure in light of an indicative takeover proposal worth 2.4 billion.

There was no such rally for Premier Foods, which fell a further 0.8p to 17.9p, after UBS downgraded the Hovis owner in light of a recent profits warning.

Shares in Dundee-based cash machine advertising firm i-design were up 9 per cent or 3.5p to 42p after it announced a contract win for its latest software.