Stock market report: Tuesday close
Merrill Lynch has taken the bold step of calling the bottom of the market in shares of British Airways, which was flying high among blue-chips today with a rise of 2.8p at 142.1p.
Losses: Shares expected to open lower today.
Merrill points out the shares trade well below their peak last year of 299p and their record of 576¼p set in February 2007, having been hit by soaring fuel costs, the start-up problems at Terminal Five and increased competition on its north American routes.
The broker reckons they look cheap and sees 'significant' scope for improvement in the next 12 months - so much so that it rates them a buy and has added them to its influential Europe 1 list with a 250p target. It expects the price to be boosted by positive newsflow, which may include a merger with Spain's Iberia, a joint venture with American Airlines and evidence of lower operating costs, such as fuel costs and labour.
Merrill says third-quarter results earlier this month also provided some reassurance about the balance sheet.
Attempts by stock-market bears to exploit any weakness by driving shares lower met with limited success.
Trading conditions remained thin with investors waiting to see the small print of President Obama's economic stimulus package. The FTSE 100 index touched 4230.14 before closing 94.53 points down at 4213.1. Wall Street extended yesterday's losses this afternoon, the Dow losing 67.7 at 8203.17.
The miners, with their heavy weighting, accounted for much of the early losses. Rio Tinto was the exception, rallying 56p in early trading but closed 17p down at 1903p, while remaining in talks with its biggest shareholder, Aluminium Corp of China (Chinalco), about a massive cash injection.
In return, Chinalco would lift its stake in Rio to between 15% and 20% and take a place on the main board.
Chinalco paid 6000p a share for its stake last year after Rio had received a takeover approach from rival BHP Billiton, down 68p at 1310p.
Deutsche Bank has raised its rating on Rio from hold to buy and lifted its target price from 1957p to 2518p. The dramatic fall in the shares has highlighted the group's debt burden, which amounts to gearing of about 50%. Rio intends to cut debt by at least $10bn (£6.7bn) this year.
The rift in the boardroom about debt levels became apparent yesterday when chairman elect Jim Leng quit. He has opposed any deal with Chinalco.
Morgan Stanley continues to rate BHP underweight but has cut its target from 1227p to 1175p. However, Goldman Sachs calls the shares a buy, saying BHP is a long-term winner from mining industry distress. Other losers included Kazakhmys, down 30½p at 291p, and Xstrata, off 70p at 724½p.
Hammerson came off the boil in the wake of yesterday's heavily discounted rights issue to raise £580m, the shares retreating 22p to 410¾p. Exane BHP Paribas has raised its rating on the property developer from neutral to outperform.
Banks traded mixed as a group of their former bosses received a grilling from the Treasury select committee. Lloyds Banking slipped 5.6p to 94.9p and Royal Bank of Scotland 1p to 23.8p but Barclays fell 2.8p to 113.4p.
Investec has dropped drinks giant Diageo from buy to hold with a 950p target ahead of first-half results on Thursday. It continues to rate the producer of Smirnoff and Baileys as resilient and well-managed, but is nervous about the outlook for demand. The shares retreated 26p to 892p.
There were signs of bottom-fishing among some stocks. Traders are clearly short of Plus Markets, 1¼p better at 6¾p and up from 4.25p since the start of the year. Plus is a rival to the London Stock Exchange, down 8½p at 465½p, and saw a big surge in the number of shares traded in January.
Bargain-hunters were also sniffing around motor trader Pendragon, up 1.21p at 4.55p, as more than 4m shares changed hands.
On Aim, shares of Fayrewood were suspended at 123½p pending an announcement.
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Tomorrow's agenda
After today's 'show trial' of shamed ex-banking bosses comes the parade of those still in charge. Barclays' John Varley, Eric Daniels of Lloyds Banking Group, Abbey's Antonio Horta-Osario and Paul Thurston of HSBC appear before the Treasury Select Committee, along with Stephen Hester, the man sent in to rescue Royal Bank of Scotland.
MPs, especially chairman - or perhaps chief inquisitor - John McFall, will give the bankers a grilling, as they try to get to the bottom of how the financial crisis occurred.
The Bank of England warned in November that it expects the economy to shrink by 1.3% in 2009. Its forecasts for the year are likely to get even more bearish in its latest Inflation Report. Governor Mervyn King will also explain why interest rates were cut again at the last meeting while economists will be looking for a further steer on what policymakers plan next.
Meanwhile, the latest labour market statistics will deepen fears over the economy. The Office for National Statistics is tipped to say that unemployment hit 2m in December.
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