COATS Viyella shares surged 12% yesterday as the beleaguered textiles group clinched the sale of its engineering division for #322m cash.

Coats said the sale of Precision Engineering to private equity investor Cinven would maximise shareholder value. But it dampened speculation about imminent share buy-backs or acquisitions by noting that the proceeds would be used initially to cut borrowings.

''Today's transaction, together with the recent trading update, underlines the strides forward that the management team is making at both operational and strategic levels to create value for shareholders,'' said chairman Sir David Alliance.

News of the disposal lifted Coats Viyella shares 3.75p to 39p, but they were worth nearly 100p at this time last year.

The group had appointed merchant bank JP Morgan to explore sale options for its engineering arm - which manufactures precision components in metals and plastic - after receiving several serious expressions of interest.