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Yesterday's trading: Morgan Stanley bolsters FTSE

By Geoff Foster for MailOnline
Updated: 04:05 EDT, 22 July 2008

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Shrugging off one of the biggest rights issue flops in the history of the London Stock Exchange, the Footsie retrieved a 41.8 point deficit to close 27.9 points higher at 5,404.3.

An eye on the markets: The Daily Mail's Geoff Foster

Its resilient performance owed much to Teun Draaisma, Morgan Stanley's highly rated equity strategist, who told clients it is time to dip a toe back into the market.

The broker has gone overweight on equities for the first time in three months, reducing its cash weightings by 3% and increasing equity weightings by 3%. Rival broker UBS said it is now seeing growing signs of overreaction - and with overreaction comes value.

Better-than-expected second-quarter results from Bank of America also prompted an early 63 point gain on Wall Street which was later eroded by a bout of profit-taking.

Confirmation from HBOS that only 8.3% of its shareholders took up shares at 275p in the £4bn rights issue left dealers flabbergasted. It meant underwriters Morgan Stanley and Dresdner were left with the unenviable task of placing the rump, a mammoth £3.7bn worth of stock, which closed 17½p down at 264½p.

Buoyed by higher metal prices and a squeeze on short trading positions, miners sewed a richer seam. Lonmin jumped 121p to 2531p, Kazakhmys 62p to 1414p, Vedanta Resources 69p to 1907p and Rio Tinto 150p to 5220p. BHP Billiton gained 46p to 1646p ahead of tomorrow's full-year 2008 production report.

Reports of a pending upbeat circular helped properties venture forward. Land Securities advanced 69p to 1255p, British Land 24½p to 701p, Hammerson 30½p to 926p and Liberty International 30p to 944½p.

Norwich Union owner Aviva was sold down to 510p and closed 14½p cheaper at 524½p on fears it is interested in bidding for Spanish bank Santander's insurance business. It could cost in excess of £3.2bn. Aviva reports interims tomorrow and broker Panmure Gordon believes the absence of UK flood claims should help offset a slowdown in life and savings products.

Selling ahead of the annual results on Thursday week left satellite broadcaster BSkyB 11¼p off at 461¼p. It still holds a 17.9% stake in ITV (0.4p dearer at 47p) which it bought for 135p a share.

Detica, which builds intelligence and analytical systems for commercial and government bodies, soared 98½p to 401½p following after-hours news on Friday of a bid approach. BAE Systems (9½p easier at 434½p) is the name in the frame although EADS and Finmeccanica are possible counter bidders.

News of yet more significant social housing contracts amounting to £170m lifted Mears 17½p to 276p. It has won a 10-year sole partner contract with Metropolitan Housing Trust based in London and the Midlands and a four-year partnership with Bracknell Forest Homes to carry out Decent Homes works. The order book now stands at £1.6bn.

Amid further signs of an easing in the mortgage market, housebuilders attracted renewed support. Barratt Developments rose 9¾p more to 93½p and Taylor Wimpey 3¼p to 48½p.

Nervous selling fuelled by rumours it has had some licences in the Ukraine revoked left oil and gas exploration company Cadogan Petroleum 18½p lower at a new nadir of 147½p. Empyrean Energy lost 8p at 34½p after confirming flow rates at its Kennedy 1H well in Sugarloaf Block B have not improved despite continues fracture stimulation work.

Gold producer Goldplat jumped 2.8p to 11½p on a positive trading statement ahead of its annual results. Its two gold recovery plants in South Africa and Ghana are performing well.

Following the successful installation of the world's first HTS induction heater for its client Weseralu, Zenergy Power zoomed 16½p ahead to 172½p.

Photo-Me International improved 1½p to 13¼p after selling Auto Photo Systems, its vending business in the US, to Jean-Claude Perrottley, an employee.

Almost 17m shares in Vialogy changed hands and the close was 1¼p better at 63/8p. Buyers were excited by positive early results from a pilot project in Texas to more accurately determine the size and position of oil reservoirs.

Specialist holiday operator Holidaybreak firmed 2½p to 372½p on a Brewin Dolphin buy recommendation ahead of tomorrow's trading statement. The broker says the share price is implying a significant fall in profitability in 2009.

• Broker Landsbanki sees substantial upside in Coal of Africa (¾p easier at 143¾p) if logistics issues in South Africa are resolved. CoF has been an aggressive acquirer of coal projects in the country and is well positioned to capitalise on the substantial increase in coal prices. Steel giant ArcelorMittal owns 16.6% and has agreed to buy 2.5m tonnes of coking coal annually at favourable terms to CoF.

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