Market report: Tuesday close

By Mickey Clark for MailOnline
Updated: 12:07 EDT, 28 August 2007

A six-session rally on the London stock market came to an abrupt halt today as the FTSE 100 index tumbled more than 100 points.

Once again, the US subprime loans crisis was to blame with investors unnerved by worries about how much the banks may be exposed.

The Footsie was lower from the start as banking shares suffered and late in the session it was dragged down further as trading in New York got off to a bad start.

The FTSE 100 index ended the day down 117.9 at 6102.2. As London closed, on Wall Street the Dow Jones industrial index was off more than 140 points.

Overall, the financial sector remained a drag on investors as the shock waves from the subprime credit crunch and rising interest rates continued to be felt.

Bradford & Bingley was an early casualty, falling a further 20¼p to a new low for the year of 369p as the mortgage lender continues to count the cost of rising interest rates. JPMorgan has cut its target from 370p to 350p and repeated its underweight stance. It warns increasing funding costs mean B&B's new-mortgages business is barely breaking even.

Near-term funding pressures could reduce the lender's earnings-per-share estimates by 5%, JPMorgan says. The broker reckons passing on these costs to consumers could be the catalyst that finally slows a market that has been fuelled by cheap credit.

Barclays fell 22p to 589p despite denying it had lost heavily in the debt market. Other casualties included Standard Life, down 1½p at 302p, fund manager Schroders, off 52p at 1283p, and mortgage lender Alliance & Leicester, 41p cheaper at 1008p.

The sell-off in the financial sector spilled over into the rest of the market as investors made their way back from the bank holiday weekend.

Morgan Stanley has repeated its equal-weight rating on Rolls-Royce, but thinks it is a clear buy at 450p and below. It says it is possible that global equity markets could take another turn downward, especially if concerns about a US recession intensify.

The broker added that, with Rolls shares trading 3¾p lower at 492¾p, concerns about the impact of an increasing macro-economic slowdown and a weaker US dollar are fully priced in. There would be further scope for improvement if Rolls's efficiency gains prove stronger than it forecasts.

ReneSola tumbled a further 49½p to 210p following last week's warning from the maker of wafers for the solar photovoltaic industry that its full-year financial target will be hit by a drop in production.

Car hire operator Avis Europe traded a few pence above its low for the year at 45p after warning fullyear underlying pre-tax profits in its Portuguese operation would be about €2m (£1.36m) lower than expected due to alleged malpractice in the division. The group's overall expectations for 2007 were unchanged as it posted underlying pre-tax losses, excluding discontinued operations, of €1.9m against losses of €4.5m last time.

Ark Therapeutics firmed 1p to 114p ahead of tomorrow's results, which are set to be in line with forecasts as analysts await the European Medicines Agency's approval of Cerepro before delivering their verdict.

The company recently withdrew its Cerepro marketing application after the agency requested more data from a phase three trial. Ark says the trials are now under way again and it will resubmit its application once they are completed.

Punch Taverns rose 1p to 1049p amid vague talk of a bid from rival Mitchells & Butlers, down 15½p at 704p.

TAKING STOCK: Market news at a glance

BANKING & FINANCE
Mortgage lender Northern Rock is a good buying opportunity after heavy losses this month, says ABN Amro. Northern has been hit hard in the recent turmoil, and ABN says investors should be looking for stocks that have been oversold.

BUILDING & PROPERTY
The cost of renting offices in London is still rising despite fears of a slowdown. Land Securities let the top two floors of its New Street Square development at £76 per square foot, a midtown record, to wealth management firm Towry Law.

CONSUMER
The Restaurant Group, owner of chains including Frankie & Benny's and Garfunkel's, look cheap, according to Altium Securities analyst Greg Feehely, who rates the stock as a buy.

ECONOMY
Bank of Japan interest rate-setters decided not to raise rates in July because many of them were worried about the impact of the US subprime mortgage problems on global credit markets. Minutes of the meeting out today showthe doves won by eight votes to one.

ENGINEERING
ABN Amro says buy shares in construction company Balfour Beatty following the collapse of Metronet, in which it had a 20% stake. 'With the Metronet issue effectively capped, and good prospects, we reiterate our positive stance,' ABN says.

HEALTH
A nasal spray of AstraZeneca's migraine treatment Zomig can ease painful 'cluster' headaches. The New England Center for Headache in Stamford, Connecticut praised the spray, which does not yet have regulatory approval.

INDUSTRIALS
Investors should buy shares in sugar king Tate & Lyle following clearance from the EU for the disposal of its European starch operation, reckons Shore Capital. Shore says the deal reduces exposure to low-margin commodity markets.

LEISURE
The impact of the smoking ban on bingo will become clearer when Mecca owner Rank reports on Thursday. Investec says: 'We expect newsflow to be slightly better than the market expects, and we remain cautiously optimistic.'

MEDIA
Newspaper publisher Johnston Press is expected to report a fall in profits tomorrow as a slowdown in advertising revenues bites. City analysts forecast first-half profits of between £94m and £95m against £101.6m last year.

NATURAL RESOURCES
Mining firm Antofagasta is expected to report first-half pre-tax profits of $1.344bn (£672m) tomorrow compared with $1.325bn in the first six months of last year. The City is forecasting sales to rise from $1.85bn to $1.86bn.

RETAILING
Panmure Gordon analyst Christian Koefoed-Nielsen says a slowdown in consumer spending will hit Currys and PC World owner DSG International. He is looking for a 3% rise in like-for-like sales in Thursday's first-half results.

SUPPORT SERVICES
Collins Stewart has upgraded 2008 earnings forecasts for energy services firm Cape by 15% following the £34m purchase of Total Corrosion Control, which offers industrial services to blue-chip clients in the mining, oil, gas and construction sectors.

TECHNOLOGY
Green technology developer Accsys 'remains a very attractive investment proposition', says Collins Stewart analyst Michael O'Brien. Demand is rising for its technology, which turns softwood into hardwood.

TELECOMS
Mobile phone users travelling abroad will in future talk for longer, countering the effect of EU price caps on roaming fees, Esa Rautalinko, head of consumer services at Scandinavian mobile phone company TeliaSonera, said.

TRANSPORT
Singapore Airlines is buying a stake in China Eastern Airlines as part of its drive into the lucrative Chinese market. Singapore Airlines and parent company Temasek will pay about $930m (£461m) for the 24% shareholding.

UTILITIES
The UK water sector is oversold, according to Credit Suisse. The strong credit ratings of firms such as Kelda and Severn Trent should make buyouts in the sector more attractive than in other sectors. South West Water owner Pennonis Credit Suisse's preferred pick.