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Market report: Tuesday close

By Mickey Clark for MailOnline
Updated: 12:07 EDT, 29 July 2008

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Merrill Lynch's impersonation of Oliver Twist in wanting some more cash did not go down well in the city. In fact, it added to investors' worries about the deteriorating condition of the financial sector and how much longer the credit crunch will go on.

Latest: Updated share prices

Only a few weeks ago, Merrill told shareholders it had sufficient funds to restore health to its balance sheet. But it now wants an extra £4bn and is writing off a further £2.8bn worth of dodgy loans.

That impressed investors on neither side of the Atlantic. It also prompted a fresh sell-off in UK banks, which themselves face a difficult few weeks during the interim reporting season.

Barclays was a casualty, falling 12½p to 326¼p, and losses were also seen in HBOS, down 14¾p at 272¾p, and Royal Bank of Scotland, 5½p off at 200¾p. Lloyds TSB, 2¾p cheaper at 321p, and bid target Alliance & Leicester, 6¾p better at 340¼p kick off the reporting season this week along with HBOS.

Record quarterly profits from BP went some way to underpinning the rest of the stock market early and inspired rises in other oil producers such as Tullow Oil, up 2½p at 750p while Cairn Energy closed down 35p at 2654p and Royal Dutch Shell was 33p worse at 1785p. But profit-taking eventually saw its price retreat 9p to 509p.

This enabled the FTSE 100 index to stage a useful 79.7-point turnaround, rising 28.5 points to 5341.1 in thin trading. It later closed up 6.6 at 5319.2. The wider FTSE 250 index also rallied from opening falls with a rise of 66 points at 8782.7, having touched a low for the day of 8593.9. It closed 14.7 up at 8731.4.

Turnover levels remained at a low ebb, with many investors heading for the sussex Downs to try their luck with the bookies at Glorious Goodwood rather than risk it on the stock market. This afternoon Wall Street was able to claw back some of yesterday's losses. The Dow rallied 123.5 to 11,254.6.

Vedanta Resources celebrated news of better-than-expected profits with a rise of 37p to 1889p. Morgan Stanley is sticking with its overweight rating on the shares and expects a speedy roll-out in aluminium and power, and a big increase in the volume of iron-ore production.

The news from Vedanta also lifted other miners and helped cushion losses among blue-chips. Antofagasta rose 8½p to 548½p, and Anglo American 50p to 2800p.

Eurasian Natural Resources Corporation (ENRC) rose 13p to 933p after it emerged that rival mining outfit Kazakhmys had bought a further 98.60m shares, worth an estimated £614.2m, from the Kazakh government in return for 80.3m of its own shares.

The Kazakhs thus get 15% of Kazakhmys, whose stake in ENRC is at the same time raised from 14.59% to 22.24%, bought at an average price of 623p a share. Shares of Lloyds' list publisher Informa were briefly suspended prior to the company announcing it had received a bid approach from a third party. The shares rose 13¼p to 437¼p. Informa is still in talks with Providence equity, the carlyle Group and hellman & Friedman about an offer of 506p a share. It rejected an offer worth 630p a share from German publisher springer science & Business.

The bears felt the squeeze in British Airways, with the price rising 14p to 248½p, after briefly touched 256p following the announcement of merger talks with spanish carrier iberia. The fuel crisis prompted many bears to take short positions in the shares.

Housebuilder Persimmon, down 1½p at 311½p, has bounced back 40% since its low point earlier this month of 228p. Panmure Gordon reckons this may be a case of too far too soon. The broker has moved from hold to sell, but is sticking with its target of 225p .

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Tomorrow's agenda

Lloyds TSB kicks off what is expected to be a bloody reporting season for the banks when it delivers its half-year results to the City tomorrow. Analysts reckon profits at Lloyds will drop by more than a fifth to £1.6bn and warn it will be worse for some of its rivals. HBOS gives its figures on Thursday and Alliance & Leicester on Friday. The market will be keen for signs of continued defensive strength from Lloyds, which has so far been one of the least affected by the credit crunch.

The City will be hoping for some positive news from fashion chain Next after a dismal performance in February, March and April. Same-store sales tumbled 8.9% in that period but there are signs things have picked up a little since then as the warmer weather has tempted shoppers to buy summer clothes. However, with people reluctant to spend too much in the face of rising bills, the outlook does not look good.

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