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Incidents of insider trading on the London Stock Exchange are giving the country's financial watchdog serious cause for concern.

According to the Financial Services Authority (FSA) suspicious share price movements preceded 23.7 per cent of takeover announcements in 2004/05.

Although this represents a fall from the peak of 32.4 per cent in the previous year, the FSA says the level is still too high; in 2000 the proportion was 20 per cent.

The FSA says the latter figure is significant as it was complied before the implementation of the Financial Services and Markets Act.

Today's report into Britain's market cleanliness also shows a sizeable decrease in informed trading ahead of FTSE 350 companies' trading announcements.

According to the watchdog only two per cent of significant announcements were preceded by price movements in 2004/05, compared to 19.6 per cent four years earlier.

"We are pleased to see the improving trend in market cleanliness with the addition of the 2005 data," said Sally Dewar, director of the FSA's markets division.

"However, the figures for takeover announcements, although moving in the right direction, remain a cause for particular concern and there will be no let up in our efforts to tackle the problems in this area.

"These results reinforce the importance of our ongoing work on market abuse and in particular our current review into the handling of inside information in mergers and acquisitions," she added.