Yesterday's trading: Footsie shows signs of fight

By Geoff Foster for MailOnline
Updated: 02:47 EDT, 21 August 2007

Keeping all digits crossed that the worst of the recent sell-off is over after the Fed threw markets a lifeline on Friday by cutting its primary discount rate by half a percentage point to 5.75%, fund managers nibbled away at oversold blue chips.

Confidence had returned to Asian markets overnight as both the Hang Seng and Shanghai Composite indices soared 5%-plus and that helped the Footsie take the bull by the horns and rise 99 points to 6,163 before dealers could digest their cornflakes.

Unfortunately, it proved to be the best level of the day as buyers showed a reluctance to chase the blue too far. The close was 14.5 points better at 6,078.7.

Dealers believe the ball is still firmly in the Fed's court. They fully expect the Fed to cut its critical funds rate by at least 0.5% at the next Federal Open Market Committee meeting on September 18, if not before.

The dicky Dow Jones, which bounced 233 points on Friday, drifted lower mid-session on profit-taking amid fears that yet more subprime skeletons are about to fall out of the cupboard before bouncing back at the close.

British Energy was top Footsie performer, rising 19¾p to 451¼p after Goldman Sachs upgraded to buy from neutral and advised clients there is 28% potential upside from the current level.

Miners sewed a richer seam as commodity prices rallied. BHP Billiton recovered 51p to 1275p with sentiment additionally boosted by news it is to restart production at its Olympic Dam smelter, the world's fourth largest copper deposit and biggest uranium deposit, which was shut down last week after an incident that resulted in six workers being treated for smoke inhalation. Kazakhmys added 45p at 1170p and Rio Tinto 96p at 3076p.

Trading at a 20% discount to its US peers, BAE Systems looks cheap at 431p, up 14½p, says Numis. The defence group has low gearing at 14%, which enhances the prospect for above average dividend growth. Qinetiq rose 6¼p to 173½p after chief executive Graham Love bought 50,000 shares at 172p.

Along with many other City scribblers, broker JP Morgan obviously believes the Qataris' £6 a share offer for supermarket group J.Sainsbury is dead in the water. It moved the stock to underweight and slashed its target price to 400p from 500p. It left the shares 10p lower at 510½p.

Nervous selling ahead of today's interims left housebuilder Persimmon 23p off at 1250p. Cautious comments from Citigroup proved a drag on Imperial Tobacco, 22p off at 2138p. The broker says that deteriorating financing conditions for its Altadis acquisition could cut earnings per share by 5%.

Rumours of a pending bullish circular helped Southern Cross Healthcare, Britain's biggest care homes operator, climb 30½p to 470½p.

A UBS upgrade to neutral from sell and £5 target price lifted Tullow Oil 20½p to 450p.

Strongly rumoured to be on the acquisition trail, Amec added 5½p at 605p. It has won a £42m five-year contract from Kuwait National Petroleum Company to provide consulting and engineering services, covering upgrades and refurbishment of three oil refineries. Abbot Group, which is believed to be on Amec's shopping list, rose 3¾p to 270½p.

Reflecting improved conditions in debt markets, Intermediate Capital, which provides mezzanine capital to Western European companies, advanced 41p to 1477p.

Speymill improved 2¼p to 87½p after the property services company entered into a joint venture agreement with the Goodman Group of Minneapolis, US, to investigate the development of Retirement Village Communities in the UK.

Gemfields Resources, the Zambian miner, jumped 5p to 29½p following the discovery of a 10,050 carat emerald at its 100% owned Mbuva-Chibolele emerald mine. Buying on the back of a broker recommendation lifted Bezant Resources 7p to 79½p.

Video streaming technology company Vividas put on 4p at 66½p after reaching a three year agreement with FOX Soccer Channel, owned by News Corporation, to stream Barclays Premier League matches in the US.

More than 150 matches annually will be offered to a US audience on a pay per view, subscription and advertising-supported basis. Matches will be available at prices from £2 to £4 depending on whether they are available live or on a delayed basis.

• Carnival steamed 35p ahead to 2178p but broker Landsbanki believes that Hurricane Dean, which has not yet had any direct impact on the cruise market in the Caribbean, may well have an indirect impact by putting upward pressure on oil prices. There are fears too that 2007 could see a more severe hurricane season than last year. The broker maintains its reduce recommendation and target price of 2070p.