FTSE Close: BAE down; Xstrata, BHP up

 

17.15 (close)

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Market watcher: Markets will be watching Parliament today.

Blue chip stocks shrugged off the Government's spending review today as big gains in the mining sector helped the top tier move higher.

Investors gave little reaction to Chancellor George Osborne's deficit-busting measures, which were largely as expected.

A rebound on the Dow Jones Industrial Average in America helped give London's FTSE 100 Index a boost, up 25 points to close at 5728.9.

Trading earlier in the session had been lacklustre, with the Bank of England's latest minutes also failing to provide direction.

The report offered few clues on quantitative easing as the bulk of the Monetary Policy Committee continued their wait-and-see approach.

Sterling remained robust in the face of the spending review, up more than 1% to $1.59, although it fell marginally to 1.14 euros.

Stocks were helped by gains of more than 1.1% in the US as Wall Street pulled back after plunging the previous session on concerns over growth in China sparked by its shock rate rise.

Mining stocks propped up the Footsie in London as they too recovered from the China rate blow.

The mood in the resources sector was helped by September production numbers from BHP Billiton after the mining giant maintained output across the bulk of its commodities.

Xstrata rose 42.5p at 1291p, while the upbeat report from BHP meant its shares rose 53.5p to 2192.5p.

BAE Systems fell more than 4% today as the stock turned ex-dividend - meaning new investors will not take part in the next shareholder payout - and as investors digested the impact of the Government's defence spending review on shares in the sector.

With an order for BAE's Nimrod aircraft among the casualties, the blue-chip stock fell 14p to 349.9p following a decline of almost 2% last night.

Banks were in the spotlight again as the Chancellor announced a step forward in introducing the £2.5bn a year annual banking levy, with draft legislation due to be published tomorrow.

This followed a difficult session yesterday in the wake of China's rate hike and a broker downgrade on Lloyds Banking Group.

Royal Bank of Scotland was 1p lower at 46p, while Lloyds dropped 0.2p to 70.3p.

In corporate news, a cautious outlook statement from Sports Direct International offset any cheer from its forecast that first half-year profits will be well ahead of last year. Shares were down 3.6p at 143.9p.

And haulage firm Stobart Group dropped 9% or 13.5p to 143p after it made a slight downward revision to its full-year profit hopes due to the impact of Network Rail spending cuts at its rail maintenance operation.

Meanwhile, shares in foods group Uniq were 13% higher after it unveiled radical plans to transfer 90% of the firm's equity to its pension scheme in a fresh attempt to resolve a mammoth funding deficit.

Shares rose 0.9p to 7.8p.

The biggest Footsie risers were Autonomy Corporation ahead 61p to 1505p, Xstrata up 42.5p to 1291p, Anglo American up 89.5p to 2871p and Smith & Nephew up 17.5p to 568p.

The biggest Footsie fallers were BAE Systems down 14p to 349.9p, Smiths Group off 31p to 1219p, Royal Bank of Scotland down 1p to 46p and BSkyB down 11.5p to 694p.

15.30: London markets were treading water after Chancellor Osborne detailed Government spending cuts which were not perhaps as aggresive as many had feared, with the Footsie down 4.9 points to 5,698.9.

Support service provider Serco was down 9.5p at 617p.

Outsourcing specialists Capita dipped after the Chancellor started speaking, but remained slightly higher over the session up to early afternoon – 3p better off at 787.5p.

Healthcare component provider Smith & Nephew fell after the spending review was unveiled, despite the Chancellor's reassertion that the NHS frontline services would be protected. The stock gave away earlier gains and was 9.5p up at 560p by early afternoon.

Financial markets welcomed the cuts, with gilts remaining solid in the expectation that the UK budget deficit will be reduced.

Prices for benchmark 10-year UK Government Bonds did fall in the minutes after the Chancellor took to his feet to make his spending announcement, but soon recovered.

As it was, the gilt markets were less animated in response to the spending announcment than they were by minutes from the Bank of England Monetary Policy Committee earlier today, which had suggested a further round of Quantitative Easing may be undertaken.

The pound moved slightly lower after the spending announcement, Sterling slipping to $1.5728 from the day's high of $1.5756. Against the euro, the pound fell to €1.1336.

US stocks gained modestly at the open as the focus returned to corporate earnings and fears dissipated about the effect of an interest rate increase in China.

The Dow Jones added 76.7 points to 11,055.3. The Standard & Poor's 500 put on 4.3 points, or 0.4%, to 1,170.2.

13.45:

The Footsie has edged up 1.5 points to 5,705.4 with the Chancellor having just finished delivering his Comprehensive Spending Review.

Defence firms are mixed as investors digest the defence review, which tightens the screws on government spending in the sector, with top faller BAE Systems also hit after going ex-dividend.

BAE is down 14.4p or 4% to 349.4p.

'The UK SDR contains some negatives, (for BAE Systems) such as Harrier retirements and Nimrod cancellation, and some positives including reaffirmation of Astute subs and both aircraft carriers,' says Execution Noble in a note.

'In aggregate we believe the SDR falls largely within BAE's planning parameters,' the broker says, keeping a 'buy' recommendation on the company.

In its own statement yesterday, BAE set out to assuage fears that it was not ready to deal with the changes.

'[The SDR] gives us the basis on which to adapt our plans. We will now study the Review and the outcome of the Comprehensive Spending Review and will make a further announcement alongside the release of our Interim Management Statement on Thursday 21 October 2010.'

Mid-cap Babcock International gains 1% or 6p to 570p, recovering some of Tuesday's sharp falls, with brokers maintaining a positive outlook for the stock.

Analysts at Liberum, Execution Noble, Panmure Gordon and Seymour Pierce maintain their 'buy' recommendations on Babcock, citing Whitehall's decision to delay its decision on Trident and commit to new submarines and type 45 destroyers.

'The investment case for Babcock should now move beyond uncertainty over capital programmes, with positive confirmation for the vast majority of Babcock's activity,' Execution Noble's David Brockton write in a note.

12.00:

Mining stocks propped up the London market today as the FTSE 100 overcame the impact of poor sessions on Wall Street and in Asia.

The mood in the resources sector was helped by September production numbers from BHP Billiton after the mining giant maintained output across the bulk of its commodities.

The rally, which saw the Footsie climb 19.3 points to 5,723.1, offset ongoing uncertainty as Chancellor George Osborne now reveals his government spending cuts.

The Bank of England's latest minutes provided few clues as the bulk of the monetary policy committee continued their wait-and-see approach. With inflation and GDP forecasts due in the next month, November's meeting of the committee looks to be pivotal in determining future policy.

World markets were spooked overnight by China's surprise interest rate hike but this failed to impact on mining stocks however, with Xstrata up 28.5p at 1,277p, Rio Tinto ahead 86p at 4,034p and Anglo American 60.5p stronger at 2,842p. The upbeat report from BHP meant its shares rose 38.5p to 2,177.5p.

10.00:

BAE Systems fell more than 3% today as investors digested the impact of the government's defence spending review on shares in the sector.

With an order for BAE's Nimrod aircraft among the casualties, the blue-chip stock fell 12.3p to 351.6p following a decline of almost 2% last night.

The wider London market was on edge ahead of details of the government's spending plans for the next five years, the FTSE 100 losing 18.5 points to 5,685.3.

This was after a sharp fall for Wall Street and in Asia as China's surprise interest rate hike raised fears that Chinese growth will slow and weigh down the global economic recovery.

Banks remained under pressure after a difficult session yesterday, with Barclays off 1.3p at 287.5p and Lloyds Banking Group down 0.3p at 70.2p.

In corporate news, a cautious outlook statement from Sports Direct International offset any cheer from its forecast that first half-year profits will be well ahead of last year. Shares were down 2.8p at 144.7p.

And haulage firm Stobart Group dropped 8% or 13.2p to 143.3p after it said it had made a slight downward revision to its full-year profit hopes due to the impact of Network Rail spending cuts at its rail maintenance operation.

Smith & Nephew shares climbed 15.5p to 566p, the top FTSE 100 riser, with traders citing a positive results from the orthopaedic products firm's US peers, Stryker Corp and Johnson & Johnson.

'While the market does appear to have slowed further in Q3, it does not look worse than our expectations at this point,' JP Morgan Cazenove says in a note.

JP Morgan also notes that a US district court ruled Kinetic Concepts Inc's wound therapy products patents invalid and rendered judgement in favour of Smith & Nephew.

'We believe this was the best possible outcome for Smith & Nephew and removes a near term injunction risk,' the broker says.

Shares in Dragon Oil fell 11p to 450p after it said it estimates gross field production to increase by 5% this year, below its initial expectations.

'I think relative to the sector it's going to underperform,' says Evolution Securities analyst Leslie Johnson. 'There is potentially a good development story here but I'd like to see the signs coming through.'

The broker downgrades the stock to 'sell' from 'neutral'.