Shares in Sainsbury's rose 2.5p to finish on 583.5p yesterday following increasing takeover speculation.

Although the supermarket chain released a first quarter trading update, which reported a 5.1% increase in like-for-like sales, excluding fuel, and a 6.7% increase in total sales, talk in the City was on the possible plans of Qatari-backed property investment group Delta Two, which last week upped its stake in Sainsbury's to 25%.

Sainsbury's CEO Justin King refused to comment on the group's recent stake-building or on rumours that the group was planning to make a bid. “The Quataris said some months ago that they were great admirers of the turnaround that has been effected and supporters of our plans for the future. There is no reason to doubt that that's their point of view,” he said.

“The management's view, supported widely by shareholders, is that splitting the company into property and operating companies is not in the long term interests of the company,” King added.

Meanwhile, Sainsbury's added to fears that consumer spending was slowing down. Its like-for-like sales growth, although outperforming Tesco, were slightly lower than analysts' expectations and King admitted that household budgets were “being squeezed”.

However, analysts were not overly concerned. “Sainsbury's, with non-food contributing only 15% of sales, should not be too heavily affected by the more subdued non-food environment of which Tesco warned earlier this week,” said Richard Ratner, an analyst at Seymour Pierce.