The recent rally in the Kingfisher share price stalled yesterday on concerns that an European Union sales tax row could hit profits at its French Brico Depot business.
The dispute centres on a proposal to allow nine "old" EU member states, including France, to keep value added tax on a number of labour intensive services, including construction, below 15% until 2010. It is backed by 24 member states but opposed by Poland.
Austrian finance minister Karl-Heinz Grasser has vowed to find a solution acceptable to all 25 member states. However, analysts are concerned that a compromise could indirectly affect Kingfisher's fast-growing Brico Depot operation, which is expected to generate about 17% of group profits this year. At the moment VAT on building materials in France stands at 5.5%.
Kingfisher shares, 228p a few weeks ago, closed 5.75p lower at 237.5p one of the biggest fallers in the FTSE 100.
In the wider market, leading shares closed lower, dragged down by a weak opening on Wall Street and a profits warning from Cable & Wireless, down 12.25p to 102.25p, which in turn upset index heavyweight Vodafone, off 2.75p to 118p. The final scores showed the FTSE 100 down 19.5 points to 5760.3. Elsewhere, the FTSE 250 index firmed 3 points to 9172.6, while the FTSE Small Cap index improved 3.3 points to 3491.9.
Corus, off 1.75p at 69.75p, was one of the session's most heavily traded stocks. More than 530m shares changed hands after CSFB placed 126m shares at 71.5p to close an over-the-counter derivative trade the bank struck a few years back with Russian steel magnate Alisher Usmanov.
Property stocks had a good day as dealers learnt three industry bodies - British Property Federation, Investment Property Forum and Royal Institute of Chartered Surveyors - had forcibly called on the government to amend its draft legislation for tax efficient real estate trusts (Reits). Specifically they want the 2.5 times interest cover test and 10% shareholder restriction changed. British Land gained 28p to £11.49, while Hammerson firmed 15p to £10.44 and Land Securities Group moved up 23p to £16.85.
In contrast, mining stocks were weak unsettled by rumours that a large Middle Eastern aluminium producer had taken a $1bn (£560m) loss on a hedging position. Analysts are concerned that this could be become a trend. Indeed, Phelps Dodge recently revealed that it expected to report a loss of $200m on a copper hedge.
Rio Tinto, off 86p at £28.67, led the sector lower, followed by Antofagasta, 43p cheaper at £20.37, and BHP Billiton, 21.5p weaker at £10.38½
Among the mid caps, Topps Tiles, rose 10.5p to 220p on the back of good figures from Carpetright, 13.5p lower at £10.88½, and a survey which claimed UK house prices had risen at their fastest pace for 18 months during January.
On the downside, there was more pain for shareholders of iSoft, the healthcare software developer. Down a huge 45% on Monday following a big profits warning, the shares fell a further 16p to 184p. Traders attributed yesterday's fall to a research note from house broker Morgan Stanley which stated that iSoft had not addressed concerns about revenue recognition. On that front, dealers also noted an article in Computer Weekly that claimed Contracting for Health, the body which runs the £6.2bn national programme for IT in the NHS, has released only £234m to the main contractors.
MFI Furniture Group faded 3.25p to 66.5p on talk that the company is sounding out shareholders about a rights issue at 50p, while IT services company LogicaCMG slipped 5.25p to 181.5p after CSFB placed 30m shares for a client at 181.5p.
George Wimpey bucked the weak trend in the housebuilding sector, rising 5.25p to 514.25p as rumours of a merger with Taylor Woodrow, down 8.25p at 390p, refused to die down.
Among the small caps, Premier Direct, the UK market leader in shopping at work, advanced 15.5p to 162.5p on rumours that the company is working on an earnings-enhancing acquisition.
Synchronica, the former DAT Group, rallied 2p to 31.5p on news that an overhang had been cleared. Yesterday, the company announced David Hayes, its former chief executive, had sold his 5% shareholding.
"We believe the market's awareness of the ongoing sales and Hayes' intentions have acted as a drag on the share price for some time," house broker Panmure Gordon said, adding that Synchronica currently trades on a prospective price/earnings ratio of only 7.
Bright Things, the pre-school computer games developer which issued a big profits alert earlier this month, firmed 1.25p to 25.75p on rumours of stake building.
London Clubs International eased 1.75p to 138.25p despite fresh talk that the casino operator had received an offer for Les Ambassadeurs from Putera Sampoerna, the Indonesian tobacco tycoon. Telecoms company Thus slipped 0.5p to 15p unsettled by the Cable & Wireless profits warning and rumours that it is lining up a bid for Legend Communications, up 1.5p to 40p.
Lloyds support
Another resilient performance from Lloyds TSB set tongues wagging in the Square Mile yesterday. Against the backdrop of a weak FTSE 100 its shares, which have risen nearly 14% in the past three months, proved almost immune to profit taking, easing a mere 1.75p to 509.5p. Traders said the stock had been supported by rumours that Britain's fifth biggest bank could be a takeover target for Spain's Banco Bilbao Vizcaya Argentaria. While there could be something in such talk analysts reckon Lloyds' recent strong performance owes much to buying by income investors. Lloyds is among the highest yielding stocks in the FTSE 100 and in order to receive the final dividend payment investors need to have bought Lloyds shares by March's ex-dividend date.