Market report: Thursday close

By Mickey Clark for MailOnline
Updated: 12:27 EDT, 28 February 2008

More worrying news from the US and subprime losses by RBS sent the FTSE 100 back below the 6000 mark.

Royal Bank of Scotland reported a 9% increase in profits to £10.3bn, spot on City expectations, but increased losses from subprime exposure of more than £2bn took the gloss off recent positive banking results. RBS closed down 8p at 402p

An inflation warning from US Federal Reserve chairman Ben Bernanke gave further weight to negative feeling with the FTSE 100 closing down 110.8 points at 5965.7.

Bernanke said he was concerned about inflation but had to balance this against risks to the economy, while also commenting that some smaller banks exposed to real estate may go under.

In Wall Street, the Dow Jones was down 126.9 at 12,567.4 by 5pm British time.

Anglo-Swiss miner Xstrata slumped 168p to 3969p amid growing fears that the proposed £40bn offer from Brazil's Vale, which would create the world's biggest mining company, has hit a brick wall, writes the Evening Standard's Mickey Clark.

That was the buzz in the Square Mile as brokers tried to asses the likely damage to Xstrata's share price. One broker said the shares were unlikely to drop below 3500p because miners in general continue to be supported by a heady mixture of takeover speculation and record prices for raw materials, such as copper, gold, zinc and iron ore.

Dealers said the success of any offer by Vale hinged on it striking a deal with Xstrata's biggest shareholder, Glencore. The Swiss-based company was likely to charge Vale a bigger premium if it failed to concede marketing rights on both its own products and those of Xstrata.

The City gave the thumbs up to Whitbread's update, which celebrated by dancing to the top of the leader board with a rise of 86p to 1312p. The company is to combine its hotel and pub restaurant divisional management and outsource its logistic operations in an effort to save £25m a year. The news came as the Costa Coffee and Premier Inn chains reported an increase of 5.7 % in like-for-like sales.

Shares in the London Stock Exchange, which were among the biggest blue-chip fallers yesterday. slumped a further 81p to 1384p as Morgan Stanley downgraded them from equalweight to underweight and slashed its target from 2020p to 1500p. The broker sees further scope for weakness in the shares from potential sellers, slowing new issues, Borsa Italiana volumes and information products.

MS added that with cost and capital self-help substantially priced in, it views the relative valuation as full and at a premium to Spanish rival BME.

Phytopharm, down ½p at 23p, is raising £8.6m via an underwritten placing of 38.9m shares at 22p. It wants the money to develop its phase two trials for its Parkinson's disease drug Cogane and its motor neurone disease drug Myogane.

The company already has a licensing deal with Unilever, down 10p at 1619p, over its Hoodia-based weight management product, and its canine skin health product Phytopica is on the market in partnership with Schering-Plough.

Investors in New York had a lot to take in overnight. Federal Reserve chairman Ben Bernanke warned again about rising inflation and the broadbased slowdown in the US economy. A slump in US durable goods during January and further evidence that the housing market continues to decline added weight to his argument. The Dow

In Tokyo today, shares lost ground as a stronger yen hit exporters such as Toyota, while worse-than-expected industrial output dampened investors' confidence. The Nikkei 225 finished down 105.79 at 13,925.51.

Hong Kong's Hang Seng index closed up 107.85 at 24,591.69.

TOMORROW'S AGENDA

• WPP chief Sir Martin Sorrell is likely to be upbeat when the advertising giant reveals full-year figures. Analysts predict pre-tax profits up 10% from £766M in 2006, but shareholders will focus on hints about the future. This year should be a bumper one for the industry because of the quadrennial combination of the Olympics, US Presidential elections and Euro 2008. But fears are growing over the impact of an economic slowdown.

• MECCA Bingo owner Rank Group is expected to report a profits drop as the smoking ban and falling consumer confidence hit trade. Rank's shares have plunged since October, sparking interest from Asian gaming firm Genting, whose stake-building recently fuelled takeover talk.