- Headline shares gave up gains to trade on a flat note at noon, as profit-taking and negative newsflow in the financial sector outweighed upbeat earnings news for C&W and Vodafone.

Merger speculation surrounding Sainsbury provided a bit of extra excitement.

At high noon the FTSE100 was just 1.3 points higher at 4,844.5 with the FTSE250 close to its opening level at 7,098.6 and the techMARK marginally stronger, 1.16 points up at 1,222.32. Volumes was good with 1.192 billion shares changing hands in 86,196 deals.

On Wall Street, the DJIA is expected to open around 40 points higher from a close at 10,461.56, according to spread betting firm IG Index, as Texas Instrument's better-than-expected fourth quarter profit figures, released yesterday after hours, are expected to lift sentiment.

Back to London, financials, and banks in particular, were subdued as investors cashed in profits after the sector's recent outperformance and as sector heavyweight Northern Rock plunged as its in-line profits were offset by a negative IFRS impact.

Northern Rock reported full-year profits in line with market forecasts this morning, but the stock was knocked down after the company said new accounting standards will depress its earnings per share.

The company said pretax profits for the 2004 calendar year came in at £431.2m, up 13% on the year, and within the market's forecast range of £420m-£435m.

However, it said International Financial Reporting Standards, which came into force on January 1st this year, would depress its EPS for 2004 by 10%-12%. The downgrade in EPS was sharply higher than the 5% decline predicted by analysts.

At noon, Northern Rock shares were 21.5p lower at 776.5p, while Alliance & Leicester was off 14.5p at 887.5p, RBoS shed 22p at 1,740p, and Barclays dropped 7p to 576.5p.

Elsewhere, negative broker comments hurt several blue chips.

Wolseley was depressed by subdued comments by Merrill Lynch, which reiterated its 'sell' rating on the stock while raising estimates in the meantime.

Wolseley shares were 7p lower at 1,049p.

A downgrade by JP Morgan on both Dixons and Kesa took its toll.

The broker cut Dixons' rating to 'underweight' from 'neutral' due to concerns over margin pressures. Combined with a likely sales slowdown, JP Morgan said it now sees significant downside risk to earnings estimates next year.

As for Kesa Electricals, JP Morgan downgraded its recommendation on the stock to neutral from overweight on valuation grounds. Despite the downgrade, JP Morgan highlighted it feels confident of the prospects for Kesa's stores, both in France and the UK.

Dixons was a penny lower at 159.5p, while second-liner Kesa dropped 2p to 315.5p.

On a brighter note, Cable & Wireless rose 3p to 122p, supported by a Goldman Sachs upgrade to 'in-line' from 'underperform' after the telecoms blue chip's third quarter trading update yesterday.

In a post-update note, the US broker pointed out that C&W's third quarter trading was ahead of its and the market's expectations.

Still in the telecom sector, Vodafone was at play on better-than-expected third quarter key performance indicators.

The mobile phone giant maintained its expectations for the full year after it added over 5.4 million customers in the quarter to December 2004, bringing the total proportionate customer base to over 151.8 million.

In response, Cheuvreux reiterated the shares a 'buy' while CSFB said the figures looked very strong with net adds 5.4 million beating its 4.5 million expectation.

Vodafone shares gained 2.25p at 142p.

Prudential shares meanwhile bucked the financial sector trend to add 2p at 458.5p as its full-year 2004 sales beat market expectations.

The insurer said group insurance sales came in at £1.85bn on an annual premium equivalent basis (APE), a 26% increase on the previous year, and above the consensus forecast of £1.706bn.

In response, UBS reiterated its 'buy' stance while Cheuvreux stuck to its 'outperform' rating and 510p price target.

And rumours that a 4% stake in Sainsbury is being placed at about 290p a share sparked bid hopes and sent the shares 4.25p higher at 281.75p.

Dealers said the only investors who have such a large holding would be the Sainsbury family, Brandes or Franklin.

There are also vague rumours that the buyer could be Philip Green, who approached the Sainsbury family about two years ago.

Morrison Supermarket shares were also boosted by consolidation hopes in the sector and added 3.25p at 204.75p.

On the second line, Renishaw remained a top gainer on news it will raise its interim dividend as its first half pretax profit almost doubled.

The maker of specialist machine tools and measuring devices said its pretax profits almost doubled to £12.2m in the first half to December 31st from £6.7m a year earlier as turnover climbed to £72.5m from £58.6m.

Renishaw shares soared 39p to 710p.

On a more subdued note, Mitchells & Butlers was in bad shape, although Merrill Lynch raised its price target on the pubs operator to 360p from 330p following a solid trading update, with traders noting profit-taking after the shares' rally in the run-up to the results.

ARM Holdings was also under pressure, losing 2.5p at 102.5p, as the UK chip designer's robust Q4 revenue numbers failed to offset concerns over its Artisan business.

Cazenove reiterated its 'underperform' recommendation on ARM, while Merrill Lynch, which rates ARM as 'neutral', noted the clean operating numbers for the company were slightly below its above-consensus forecasts.

A 3% drop in sales at Chrysalis' radio operations in the five months to January sent the shares down 4.5p to 179.25p.

This offset news that the media group has seen signs of improvement in the national advertising market since the beginning of January. In response Numis reiterated 'add' and its 197p target.

Amongst smallcaps, CPL Resources stood out, advancing 14.25p to 116.25p after the Irish recruitment company revealed strong profits and sales growth for the first half and said the second half of the year has started well.

Pan African Resources ticked up 0.25p to 2.75p as traders responded to an upbeat drilling report from the WA Gold Project.

Buyers again took a punt on BETonSPORTS, 3.5p firmer at 102p, in the wake of yesterday's repeated 'add' recommendation from Evolution Securities. The house pointed out that the shares look a safer bet after more favourable American football results.

On the downside, Colefax Group took a beating, sliding 8p to 103.5p, a decline of 8%, as the furnishing fabrics and wallpaper maker warned that the ongoing weakness of the dollar is hampering its efforts to increase profitability.