LONDON (ShareCast) - London’s blue chips are still ahead, but well off their best, as Wall Street failed to carve out much of a lead in early deals.

London Stock Exchange is top riser after Citigroup lifted its price target to £18.25, up from £16.50, saying the company is benefiting from heightened volatility caused by the credit crunch.

But Alliance & Leicester is sharply lower on worries about a possible downgrade to the mortgage banks financial strength rating and long-term bank deposit and debt ratings.

Retailers are still in favour as analysts say today’s steady inflation could give the Bank of England more room to cut interest rates early next year.

Annual inflation remained above the UK government’s 2% target for the second month in a row in November due to higher road fuel prices, but held steady at 2.1%, less than the 2.2% expected.

The monthly increase in the Consumer Price Index (CPI) of 0.3% was down from the previous month’s 0.5%, but that also matched forecasts.

Debenhams is the star turn after the Telegraph reported that retail entrepreneur Mahesh "Micky" Jagtiani has taken a 7% stake in the department store chain and may be mulling a bid.

The news gave a boost to other retailers, which have rallied after hefty falls Monday. DSG, Home Retail and Kingfisher are all well ahead.

High street fashion chain Next is also in demand after JP Morgan maintained its ‘overweight’ rating on the stock and said the de-rating of the shares looks harsh.

Northern Rock is among the leaders on news the Treasury has granted a request from the troubled mortgage lender to extend the deposit guarantees issued by the government to include uncollateralised debt.

Miners have also fought back from early losses. Improving metal prices have dragged Anglo American, Antofagasta, Rio Tinto and Xstrata into positive territory.

Elsewhere, internet auction firm Tradus, formerly QXL Ricardo, rallied after it recommended a cash offer from South African media giant Naspers worth £946m, or 1,800p a share.

A series of upbeat statements from mid-caps has also lifted the mood, with temporary power supplier Aggreko expecting full-year operating profit to rise by 50%, although it warned that conditions in North America could become more difficult.

National Express journeyed higher on news it expects full year results at the top end of market expectations and remains confident about prospects for 2008.

Industrial ceramics group Cookson predicts full year results will be at the upper end of expectations. "Our end-markets are currently showing good growth and the outlook for worldwide steel production, in particular, remains robust,” it said.

Metal treatment specialist Bodycote says sales growth for the year to date has been 18% of which 8% is organic and a further 10% is from acquisitions. The board remains confident for 2008.

Power station Drax has continued to trade in line. In the absence of unforeseen circumstances, core profits in 2007 will be around £500m, less than many had expected.

Not so good is Kingspan despite trading for the first 11 months of the year showing strong growth. It tumbled after saying present market conditions leave it difficult to guide for the coming year, though it suggests growing environmental demand for insulation board should mean mid-single digit growth in earnings. That represents a sharp slow-down.

Nomura has finally got everyone singing from the same hymn sheet, with the Japanese bank confirming it does not plan to launch a bid for Collins Stewart following some confusion earlier today.

Office rental firm Regus said all four regions in which it operates are firing on all cylinders and it is on target to meet market expectations with its results this year. In the first 11 months of 2007 revenues have grown 27% to £783.1m from £616.5m in the corresponding period of last year.

Car retailer Inchcape has seen solid sales growth this year as it continues to trade in line with market expectations. In the first 11 months of 2007, total sales were up 26% in sterling terms, or 27% on a constant currency basis. Like-for-like revenue has grown 3.8%.

Poor weather and the loss of a key lingerie customer tipped female fashion group Slimma into the red, prompting cancellation of a final dividend for the year.

Shares in energy meter provider Bglobal rose as it forecast a move into profit in the second half, despite heavier interim losses.

Promotions group MKM saw a dip in underlying profit as margins got squeezed, but said the outlook for the enlarged group is positive.

• News Channel