Market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 11:58 EDT, 27 June 2007

City investors were suffering a bad case of subsidence today on the back of a profits warning from mortgage provider Northern Rock and bearish comments on prospects from builder George Wimpey.

That, combined with a fresh falls overnight on Wall Street where investors continue to fret about the fallout from the collapse of the US subprime mortgage market, had share prices in the Square Mile extending recent falls. The FTSE 100 index shed 31.7 to 6527.6.

Northern Rock paid the price for its profits warning with a fall of 113½p to 834p. ABN Amro wasted little time in slashing its rating from buy to hold with a 900p target, saying: 'The profits warning equals lower growth outlook and also higher uncertainty of earnings sustainability going forward.'

The news from Northern Rock also had a knock-on effect on other mortgage lenders, although UBS says the reasons for the profits warning were unique to Rock. Even so, Alliance & Leicester fell 29p to 1091p, HBOS 25p to 978p and Bradford & Bingley 15¼p to 394¾p.

Wimpey fared little better, falling 12½p to 513p after warning that housing completions this year would be at similar levels to 2006. The group, which is set to merge with rival Taylor Woodrow, anticipated less-buoyant conditions in the second half.

On the plus side, revived bid talk drove J Sainsbury 4p higher to 577p. The speculators say another offer of 610p may be on the way after the Qatari royal family raised its holding to 25%. The buying also spilled over into Wm Morrison, up 6p at 296p. The buyers also came in for Unilever, up 9p at 1606p, on vague talk of stakebuilding.

BAE Systems rallied 2¾p to 410½p. The shares slumped 8% yesterday after the US Justice Department warned it was investigating the defence contractor on allegations of corruption over its dealings with Saudi Arabia. Société Générale has cut its target for the shares from 470p to 430p and warns they are likely to trade at a discount to those of its US peers.

Another defence contractor, Cobham, slipped 2¾p to 202¼p after a line of 15m shares went through on the ticker at 202½p.

Morgan Stanley is the latest broker to raise its recommendation for British Gas supplier Centrica, which led blue-chips with a rise of 3p to 385¾p. It has moved from underweight to overweight and lifted its target price from 355p to 425p after a review of the company.

For 2007, Morgan Stanley's earnings forecasts are 30% above consensus, which, it says, is underestimating the impact of low gas prices in the first half of 2007. Lower churn, cost-cutting and better earnings quality are not reflected in the current share price. Only yesterday, UBS raised its rating for Centrica and that followed a similar move by Citigroup last week.

Altium Securities has raised building and maintenance outfit Interserve, down 16½p at 456½p, from hold to buy and upped its target from 535p to 500p, saying it expects a strong second half.

The broker expects a reassuring update next week with positive news on the earnings front and a gradual re-rating as the management premium is restored and the earnings mix moves more towards longer-term and more predictable earnings streams.

TAKING STOCK: At-a-glance guide to market news

Banking & finance
The US Securities and Exchange Commission has opened 12 investigations into the debt market linked to the sinking value of subprime mortgages. Problems in the sector caused the collapse of two Bear Stearns hedge funds.

Building & property
Shareholders of Derwent London have voted to convert the company and its units to a Real Estate Investment Trust. The company will have to pay a conversion charge of 2% of the value of its qualifying property assets.

Consumer
Citigroup has cut its rating on Cadbury Schweppes from buy to hold, saying it sees little scope for improvement in the share price now the disposal of its beverages business is almost certain.

Economy
US Federal Reserve interest rate setters are in open disagreement with advisers over the health of the American economy. The chiefs are more optimistic about the outlook for productivity and economic growth, minutes of May's policy meeting showed.

Engineering
Defence contractor Chemring will continue looking for acquisitions despite having made several in the past 12 months. It will focus on its energetics arm, which makes energetic materials and sub-systems for military safety customers.

Health
Drugmaker Pfizer has asked a Nigerian court to throw out a government lawsuit seeking £3.5bn in damages over allegations it conducted a drug experiment that led to deaths and disabilities among children with meningitis.

Industrials
Applied Materials, which makes equipment used to produce semiconductors, has won a contract to build a thin-film solar module production line for Taiwan's Green Energy Technology. It is scheduled to be installed next year.

Leisure
Music Copyright Solutions has signed a long-term music co-publishing agreement with Invisible Hands Music (IHM). MCS will secure agreements with IHM's diverse roster of songwriters, and manage their works worldwide, collecting royalties and other income.

Media
Media agency Tarsus has formed a new company, CapRegen to invest in the anti-ageing and regenerative medicine market. Tarsus has paid £250,000 for a 50% stake with Dr Robert Goldman and Dr Ronald Klatz jointly putting in £250,000.

Natural resources
Rusina Mining has signed an option agreement to buy Zambales Chromite Mining, which holds a production agreement at the Acoje Nickel project in Philippines, for £1m. Rusina is targeting a nickel limonite resource.

Retailing
UBS has repeated its neutral rating and 1175p target on Carpetright after yesterday's results showed a further decline in like-for-like sales. The broker points to a possible bid from 30% shareholder and chief executive Lord Harris.

Support services
Seymour Pierce says Experian's acquisition of a 65% stake in Brazilian consumer credit agency Serasa is a good move and will underpin the geographic reach of its expansion programme. But the price paid of £603m is described as full. The shares remain a hold.

Technology
Z Group shares were on the slide yesterday. The Aim-listed developer and provider of consumer internet technologies knows of no reason for the movement. The shares are trading about 35p against a high for the year of 66½p in January.

Telecoms
Credit Suisse has a trading buy recommendation on Vodafone. The broker says the mobile phone operator is front-runner to be a European partner for Apple's iPhone next week. It says the shares are worth 170p and could gain 8p if it lands the contract.

Transport
UBS has repeated its neutral rating and 2210p target on Go-Ahead following a trading update. This indicated strong performances in rail and bus divisions, but the company also warned declining subsidies and cost pressures will hit profits.

Utilities
Credit Suisse has raised its target for Pennon from 644p to 679p. This is based on better prospects for its waste arm Viridor, an increase in the fair value of debt owing to cheap borrowings and higher retail price index inflation during the next two years.