Market report: Wednesday close

 

The end of the credit crunch may still be some way off, but shares in the big banks and mortgage lenders were back in vogue today.

London Stock exchange

Movers: Latest from the Stock Exchange

Institutional investors like to think they know a bargain when they see one, and many of these banks have been trading at rock-bottom prices and may now look good value for money. Judging by today's big turnover in the shares, some of those institutions have decided to do something about it. They may have been inspired by the dramatic rally overnight in shares of Wachovia despite the US bank reporting losses of almost £4.5bn.

Leading the way in London was HBOS, the UK's biggest mortgage provider, which rose 44p to 305p on turnover of 165m shares as Goldman Sachs added it to its Conviction Buy list with a 400p target. This was despite the bulk of its £4bn rights issue having been left with the underwriters. Could it be just coincidence that stories began doing the rounds today that HBOS could soon find itself the target of a bid by the Spanish bank BBVA?

There was also talk Dresdner Kleinwort has managed to get rid of its share of the rights issue rump. Either way, the HBOS share price is now trading above the rights-issue price of 275p despite the Spaniards denying plans to bid.

Another mortgage lender, Alliance & Leicester, which has an offer worth 317p on the table from Spanish bank Santander, rose 15p to 342½p. There were also gains in heavy turnover for Royal Bank of Scotland, up 22¼p at 221¼p (on turnover of 170m shares), Barclays, 37¼p to 352p (95m shares), and Lloyds TSB, 26½p to 346½p (44m).

Any spare cash the institutions had left after their spending spree appeared to be directed at the housebuilders. They too have been bombed out by the housing slump and credit crisis, leaving most of them looking at ways to raise extra funds.

Barratt, whose price has collapsed from 963½p since the start of the year, rallied 19¼p to 110p. Taylor Wimpey was up 6¼p at 50p and Persimmon 29p at 355¼p.

A softening of the oil price gave the rest of the London market a boost, and the FTSE 100 index closed 85.8 up at 5449.9. Wall Street ran into profit-taking this afternoon with the Dow down 8.8 at 11,593.7.

Mobiles operator Vodafone firmed 2.4p to 131.4p, having created waves in the market place yesterday by warning of a revenue slowdown. Now it plans to buy back a £1bn of its shares.

Johnson Matthey fell 7p to 1731p as dealers continued to reflect on yesterday's first-quarter trading update. Merrill Lynch has repeated its buy rating on the group, which supplies catalytic converters for cars, but Credit Suisse has slashed its target from 1770p to 1605p with an underperforming rating.

It complains that a positive update will not be enough to counter concerns over the outlook for the economy. The management can be accused of being over-optimistic in the face of a falling platinum price, declining demand for cars and a slower-than-expected rate of diesel penetration.

Caterer Compass rose 3p to 371¼p on bullish comments from Cazenove.

Petra Diamonds, 1½p dearer at 100p, is excited about developments in Angola and Botswana. It said bulk sampling and narrow-diameter drilling at Alto Cuilo in Angola are delivering 'exciting' results, after it took full control of the exploration data and operational activities. Petra said diamonds from its sampling have a large percentage of white stones, and initial valuations indicate that the value will be more than $200 a carat.

SSP Holdings jumped 14½p to 184½p after receiving an agreed 190p-a-share bid from H&F Bidco, a company owned by funds managed by Hellman & Friedman, and its own independent directors. The deal values the software services company at £161.6m. TOMORROW'S AGENDA

• B&Q owner Kingfisher is struggling to cope with the strong consumer downturn. An update for the second quarter should give new chief executive Ian Cheshire another chance to convince the market his strategy - a tighter grip on operations worldwide - will work out.

Broker Bernstein says the shares are now not far above the 100p it considers a 'floor' on the price that is supported by the group's real estate portfolio. Bernstein thinks the DIY sector will bounce back, though the core UK market may struggle for a while longer.

• Retail sales figures for May caused such a stir that all eyes will be on data for June. They were so strong in May - up 3.5% - that they were widely dismissed in the City as rubbish, so tomorrow will be a huge test of credibility for the Government's statisticians. Given the economic backdrop, another wildly optimistic figure is likely to leave their reputation in tatters.

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