Shares in Horsham-based insurer Royal and Sun Alliance (RSA) climbed eight per cent amid speculation a bidder could come forward.

Traders seeking to explain the move also pointed to rumours chief executive Bob Mendelsohn had quit, although this was firmly denied by the group.

Mr Mendelsohn has come under-fire from disgruntled investors following poor half-year results from the group earlier this month.

RSA shares plunged by 22 per cent a fortnight ago after it cut 1,200 jobs and said it might have to launch a rights issue to raise cash for further growth.

But yesterday's revival followed an 11 per cent share gain on Wednesday when reports that US insurance giant AIG was on the acquisition trail began to emerge.

Dealers had expected RSA shares to suffer after credit group Standard and Poor's downgraded the group's credit rating on Tuesday.

An RSA spokesman said the group, formed by the merger of Royal Insurance and Sun Alliance in 1996, never commented on market speculation.

But Mr Mendelsohn had not resigned, stepped down or anything of the sort and was overseas on business.

Analysts said he had intimated he would go if the group continued to struggle but added there were several other rumours circulating the City.

Along with speculation of a bid from the United States or a rival in Europe, they said there was talk an £800 million rights issue could be imminent.

Spread betting firm City Index said this was causing its clients to sell but others stressed investors could see a rights issue as a sign of positive action.

One analyst said the reasons could be any, many and various. It could be attributed to Mr Mendelsohn going, it could be the rights issue.

The rise could simply be a reflection that investors feel the group's shares were currently oversold.