FINANCIAL watchdogs are investigating possible insider dealing in the City following a spate of irregular rises in share prices prior to takeover bids being announced.

The Financial Services Authority (FSA) is understood to be looking into four takeover bids or deals disclosed in the past week.

Unusual share price movements in supermarket chain Somerfield before it announced a possible takeover approach is one deal thought to have attracted attention. The shares rose sharply before it announced a £500m bid.

Also understood to be under the spotlight are security specialist Chubb and Amey, the public finance initiative contractor. Shares in the companies changed hands in unusually high volumes before they announced merger bids.

Amey has agreed to be taken over by a Spanish construction company while Chubb disclosed an approach but has not named the bidder.

Phone group mmO2 also saw unusually heavy dealing before it announced the sale of its Dutch subsidiary on Monday. It could also be under examination.

Insider dealing occurs when market professionals pass information to each other about bids or imminent takeover deals before the information is made public. In this way they can profit by buying the shares before prices go up.

The Stock Exchange monitors price movements and refers them to the FSA.

Watchdogs look for unexplained five per cent swings in stock prices and can send out transaction inquiry forms to discover who had the information and when. It can then interview people involved looking for connections.

The practice was made illegal in the 1980s, but proving it can be difficult and there have not been many successful prosecutions under the criminal regime.

Under the civil Code of Market Conduct regime, introduced in 2001, the FSA is hoping to improve its success rate