Stock market report: Thursday close

 

European recession fears see share prices tumble

City trader in front of screens

Market watcher: All eyes will be on the bank rate decision

Shares across Europe took a battering today following further evidence that the recession in Europe will turn out to be a deep and drawn-out affair.

The expected half-point cut to 1.5% in the Bank of England's base rate brought little relief to investors. Few in the City think it will have the desired effect and free up lending between the banks, or jump-start the economy. But pressure is mounting for the European Central Bank to follow suit and cut rates.

It follows a slump in German manufacturing orders of 6% in November, compared with forecasts for a drop of 2% by most economists, and highlighted the depth of the recession that Europe's biggest economy has stumbled into.

Overall exports slumped 10.6% in November on the previous month. That is the largest monthly fall since 1990. The trade surplus of Europe's biggest economy plunged to €9.7bn (£8.8bn) in November, down from €16.4bn the previous month.

As a result, stock-market investors beat a retreat across the eurozone. In Paris the CAC fell 62.79 to 3283.3, while in Frankfurt the Dax dropped 101.5 to 4835.88.

In London, shares extended yesterday's losses. The FTSE 100 index closed 2.1 points down at 4505.4. Shares on Wall Street fell sharply this afternoon after profit warnings from retailers-such as Wal-Mart, Macy's and Costco. Total jobless claims have also risen to their highest level in 25 years. The Dow fell 100.6 at 8669.0.

Pali International gave the thumbs-up to the Christmas trading update from J Sainsbury, down 6p at 328¾p, with a 4.5% rise in like-for-like sales. The broker has repeated its buy rating and upped its target from 325p to 360p.

Marks & Spencer, which put a positive gloss on its trading update yesterday-firmed 9½p to 234½p. Deutsche Bank has raised its target from 210p to 240p, while JPMorgan has raised its rating from neutral to overweight. It has jacked up its target from 245p to 300p.

A further softening of raw materials prices resulted in another sell-off of mining companies. Rio Tinto lost 82p at 1730p while Vedanta shed 45p at 705p and Xstrata dropped 28½p to 880½p.

A relapse in the oil price also prompted a sell-off among the explorers. Cairn Energy, with estimated reserves of more than a billion barrels in India, fell 98p to 1902p. Dana Petroleum lost 47p to 1040p and JKX Oil & Gas 7¼p to 202p.

But Tullow Oil stood out with a jump of 37½p to 747½p on prospects for its Mahogany-3 well offshore from Ghana. Mahogany-3 is the latest in a successful run of finds for the oil explorer across Ghana and Uganda. RBS says the result could have positive connotations for prospects across Tullow's acreage in the region.

But Citigroup has doubts about the viability of Tullow's venture in Ghana with oil continuing to trade at around $40 a barrel.

Housebuilders traded mixed despite the latest cut in interest rates. Brokers say money may be getting cheaper, but the continued absence of new mortgages continues to choke off demand for new builds. But Merrill Lynch Global Management says the Government's aid packages could help turn round the housing market in 2009. Persimmon rose 13¼p to 293p following its latest trading update, although there was little for shareholders to cheer. Panmure Gordon keeps a hold rating on the shares and a 265p target.

Taylor Wimpey also firmed 1½p to 17½p, but losses were seen in Berkeley Group, 19½p to 855½p, and Bellway, 10p to 605p.

Mounting speculation of a full breakup of ailing Royal Bank of Scotland lifted its shares 1.6p to 50.6p. Rekindled speculation in the Far East overnight claimed RBS is in talks to sell its 4.2% stake in Bank of China for £2bn.

RBS has also been looking, without success, to find a buyer for its Direct Line insurance business leading to talk about a full break-up of the bank.

The rest of the banks were a touch firmer for choice following news of the rate cut. Barclays added 7.2p at 177p, Lloyds TSB 4.5p to 128.4p, and HBOS 1.3p to 74p.

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Tomorrow's agenda

JD Sports Fashion, the clothing chain frequented by downwardly mobile teenagers, updates the market on trading over the key pre-christmas period. The retailer has produced sales figures that have made rival bosses green with envy, as teens refused to stop splashing out on trainers and sports-inspired fashion. However, even JD has started to feel the pinch in recent weeks, admitting that like-for-like sales had fallen by 1% in the three months to the end of November 2008.

Housebuilder Bovis Homes is expected to pile further misery on the ailing sector when it tells investors how it is faring. it emerged this week that the developer has been forced to sell hundreds of unwanted houses to the Government at a hefty discount for use as affordable housing, in an indication of the dire straits the property market is in. But in a rare bit of good news, Bovis has succeeded in renegotiating its £220m banking facility ahead of expectations.