Stock market report: Tuesday close

By Mickey Clark for MailOnline
Updated:

 

London investors were staging a damage-limitation exercise today in the wake of another big sell-off overnight on Wall Street, where shares slumped to their lowest since 1997.

The sign and logo of the London Stock Exchange

Fearing the worst: The FTSE looks sure to follow US stock lower

It is feared the worsening banking crisis could lead to a complete nationalisation of the industry on both sides of the Atlantic, destroying shareholder value.

City traders today restricted the damage to a fall of 34.3 points at 3816.4, after the Dow slumped more than 250 points last night.

Tonight, New York shares traded below their best levels after disappointing consumer confidence and housing market numbers, and the Dow was up 5.74 at 7120.52.

Justin Urquhart Stewart, joint founder of Seven Investment Management, warned that a drop below 3800 could spark another series of job losses in the Square Mile.

'Investors are achieving smaller returns on equities, and those sitting mostly on cash hardly any returns at all. That leaves just bonds,' he said. 'As a result, firms will soon be starting to cut costs again, leading to job losses'.

Royal Bank of Scotland posted a rise of 0.9p to 22.1p, spurred on by persistent talk the bank may be split in two. It could also accrue $500m (£345m) from the sale of its operations in Taiwan.

But other financials came under the hammer. Lloyds Banking Group retreated 2.9p to 53.9p ahead of full-year results on Friday. Legal & General lost 1.4p to 35.2p and Friends Provident fell 7.4p to 67.8p as worries about possible dividend cuts persist.

Invensys dropped 4.2p to 149.2p after Morgan Stanley cut its rating from overweight to underweight.

Dana Petroleum rose 22p to 956p after striking it rich at a third well in the Rinnes field in the north Sea. Shares of the oil and gas explorer have been upgraded by Morgan Stanley from equal weight to overweight. It repeated its 1140p target.

Morgan Stanley has repeated its overweight rating on rival Tullow Oil, up 19½p at 705½p, with a 900p target, and says both companies offer the best exposure to short-term news flow. It adds that Dana is targeting additional volumes on the Rinnes structure.

But it cut Cairn Energy, down 26p at 1871p, which has been a strong performer of late, from overweight to equal weight with a 2250p target. The broker says the pricing of Rajasthan crude could be a short-term headwind, and investors should be cautious about UK exploration and production.

Cazenove warned that the UK market is continuing to lose dividend flow as companies cut payouts to conserve cash and reduce external financing requirements. It adds: 'We continue to believe that the dividends from the two large oil names - BP and Royal Dutch Shell - are undervalued by the market.'

Cazenove maintained that BP's dividend is safe - partly because the oil price is now finding a floor at around $40 a barrel and will recover closer to the global marginal cost of extraction of nearer $80 a barrel by 2011.

The broker-added: 'We also believe that BP, 1¼p higher at 454¾p, can borrow to pay its dividend, as can Shell, 9p down at 1549p, for two years before capital expenditure and cost reductions become more of a necessity.'

It has repeated its outperform rating on BP and overweight in Shell.

Bernstein says BT, off 2.8p at 87.2p, is unlikely to achieve the margins it aspires to in its Global Services division. It has cut its target from 90p to 78p, and repeated its underweight call. Deutsche Bank has raised its target price for Pearson, up 6p at 633p, from 510p to 545p. But it continues to rate the publisher of Penguin books and the Financial Times as a sell.

Shares in Thomson Reuters, the news and data agency, jumped 87p to 1409p after it reported that its fourthquarter profits leapt by 51% to $657m.

A further softening of metal prices on fears of falling demand took a toll on the miners. Rio Tinto retreated 36p to 1787p, BHP Billiton lost 5p to 1145p, and Xstrata dipped 14p to 632½p.

City coverage and share tips

This is Money carries breaking City news throughout the day. Bookmark Companies & Markets and try these markets links...

Newspaper graphic and pen

Tomorrow's agenda

Cadbury's results should prove a rare sweet spot amid the economic gloom. The Dairy Milk maker is benefiting from sterling's weakness and from strong demand as consumers turn to comfort food. Analysts forecast sales growth of 6.4% for 2008, with pre-tax profits tipped to be about £552m.

Barratt Developments has had a miserable time of late. The builder has seen housing transactions slump while it has been plagued by rumours it will go to shareholders with its begging bowl to stop it from breaching its banking covenants. Half-year figures are likely to do little to lift investors' mood.

Old Mutual unveils full-year results as solvency worries continue to hang over the insurance sector. But Old Mutual's shares rose at the end of last week on talk that its management has investigated asset sales to boost its balance sheet. Speculation is that the Anglo-South African insurer could sell its stake in Nedbank, with Standard Chartered and HSBC mooted as potential suitors.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Most watched Money videos