Market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 12:09 EDT, 9 April 2008

Credit Suisse has added its voice to those prophets forecasting a 10% drop in house prices across the UK this year, and that has led it to downgrade shares of HBOS, owner of the UK's biggest mortgage provider, Halifax.

Mickey Clark, stock market correspondent

Credit Suisse has dropped its rating on HBOS, one of the biggest Footsie 100 casualties with a loss of 23p at 526½p, from neutral to underperform and slashed its target from 890p to 565p, claiming that a 10% drop in house prices will have a major impact on the bank's capital ratios.

According to the broker, it could lead to a 60% rise in mortgage risk-weighted assets and would knock 40 basis points from its tier one capital ratio. This ignores the impact on other asset classes, which would compound the decline.

The broker says this issue affects the whole banking sector and not just HBOS, the biggest player. The sector was also depressed by the offer from HSBC, down 1p at 856p, to match existing fixed-rate mortgage deals for customers with other banks. Barclays lost 7¼p to 470½p, Alliance & Leicester 5½p to 526p and Bradford & Bingley 4¼p to 185½p.

Elsewhere, share prices traded within a narrow range despite a better-than-expected rise in UK manufacturing output. The FTSE 100 index slipped 6.31 to 5983.9. Wall Street lost an opening lead this afternoon, leaving the Dow 13.3 lower at 12,563.2.

Cairn Energy was one of the few bright spots, advancing 127p to 2960p after confirming its pipeline in western India will be ready by June, when production from its field in Rajasthan begins. Peak production is expected to reach 175,000 barrels a day.

Have coal prices landed on the moon? That is the question from broker ABN Amro on reports that Australia's largest coal company BMA, a joint venture between Aussie miner BHP Billiton and Mitsubishi of Japan, has just signed deals to supply Lakshmi Mittal's global steel empire with the black stuff at prices 211% higher than a year ago.

That has got the broker rapidly revising upwards its estimates for BHP Billiton, which it says is a screaming buy with around 12% upside on the current share price. BHP consolidated yesterday's gains, which had also been inspired by talk in the Australian press that the Chinese are ready to buy a 9% stake in the world's biggest mining company.

BHP, 42p higher at 1804p, is included among a clutch of miners tipped by ING as a buy. It has set a target of 2050p for BHP and also rates Rio Tinto, up 99p at 6000p, Xstrata, 18p better at 3972p, and Anglo American, 76p higher at 3370p. It has set a target of up to 6800p for Rio, while Xstrata is set at 4475p and Anglo American 3675p. D1 Oils down ¾p after the biodiesel producer went ahead with plans to raise almost £15m via a heavily discounted share placing.

A total of 64.4m shares were placed at 25p. The money will be used for a revised growth strategy which has seen it focus on plant science and the planting of jatropha to produce oil feedstock for biodiesel. D1 has ceased biodiesel production because of heavily subsidised US imports. Ambrian says D1 looks vulnerable to takeover from the likes of BP, up 8½p at 545½p, with which it already has a joint venture.

Merrill Lynch has added to the woes of British Airways, down 9p at 222¼p, by putting the shares on its 'least preferred' list. The fiasco that marked the opening of Heathrow's Terminal 5 has badly affected sentiment.

Currys and PC World retailer DSG International firmed 1¾p to 65p despite Dresdner Kleinwort cutting its rating from hold to sell. It partly blames the decline in the housing market.

TOMORROW'S AGENDA

• All eyes will be on the Bank of England's monetary policy committee as it announces its interest rate decision at noon. Meanwhile UK trade data, due out before that, should show the global trade in goods balance remained flat in February at a £7.5bn deficit.

• Hays, Britain's largest recruitment firm, delivers a third-quarter trading statement. Like rival Michael Page - which updated the City on Monday - business is booming in its overseas divisions, insulating it from the downturn in the UK banking jobs market. Analysts forecast net revenue growth of 18% but with UK like-for-like growth slowing to 8% from 11% last quarter.

• Package holidays group Thomas Cook is expected to reassure investors on trading at its AGM. Despite cash-strapped consumers curbing costs, chief executive Manny Fontenla-Novoa says sales remain strong.