FTSE in-depth: Dealers braced for rising rates

By Geoff Foster for MailOnline
Updated: 03:55 EDT, 6 April 2011

Some cautious fund managers decided to take some money off the table believing a move to higher UK interest rates is fast approaching.

Geoff Foster: Moody's downgrade of Portugal's debt rating also made the Footsie pull up lame.

News that activity in the UK services sector grew at its fastest pace in more than a year in March, reignited concerns that Mervyn King and his chums at the Bank of England could sanction a 0.25% hike in rates this week despite contrarian views that an increase would push the UK economy back into recession.

Meanwhile, China showed the way again, raising rates for the fourth time since the end of the global financial crisis to restrain inflation and limit the risk of further asset bubbles in the fastest growing major economy.

China's inflation accelerated to 5.2% last month, the fastest pace since July 2008. The European Central Bank is expected to follow suit with a 0.25% rise to 1.25% tomorrow.

Moody's downgrade of Portugal's debt rating also made the Footsie pull up lame. It dropped to 5,989 before rallying late to close only 9.92 points off at 6,007.06.

Wall Street rose 20 points in early trading helped by overnight news of Texas Instruments' £4bn cash bid for smaller rival National Semiconductor, one of the microchip industry's largest corporate deals in years.

That bid stimulated speculative interest in perennial takeover favourite ARM Holdings, 15p better at 588.25p.

Barclays Bank was sold down to 280p and closed 1.55p cheaper at 286.725p. The bank dismissed a report that its return on equity is set to fall below 7% this year. It also described the suggestion it was looking to increase its risk appetite as 'fiction'.

After Citigroup lifted its target price to 367p from 331p to reflect lower operational risk, insurance group Resolution rose 9.4p to 303.85p. Miners were mixed following the Chinese rate hike. Rio Tinto shed 65p to 4412.74p and BHP Billiton 5p to 2522.4899p. Continuing to reflect recent upbeat comments about gold production at its Ivory Coast mine and a strong gold price, Randgold Resources jumped 120p more to 5222.5p.

A couple of old bid favourites attracted yet more speculative interest. Wembley property developer Quintain Estates was chased up to 47.59p and closed 2.5p better at 46.25p on revived gossip that a private equity player is ready to launch a £417m or 80p a share cash offer. Activist hedge fund Laxey Partners, which owns 5.76% of the equity, is said to have pledged its shares to the bidder.

Quintain is in the process of constructing Wembley City, an area which includes a Hilton Hotel and a 600-bedroom student accommodation scheme. It also has plans to create a new 700-space car park adjacent to the London Designer Centre which it plans to open in 2012.

Speculators were hoping to strike it lucky at Soco International as regurgitated talk of a bid from China's Sinochem Petroleum did the rounds. They filled their boots with shares of the oil explorer, which touched 414p before closing 5.5p up at 399.95p.

Soco's chief executive Ed Story said recently that the group is on target for first oil from the TGT field in Vietnam, the largest development project in its history. Indeed, TGT is on track to come on stream in mid-2011.

Hardy Oil & Gas gushed 12p to 194.75p as gossip continued to suggest that one of the oil majors is sniffing around the India-focused oil and gas explorer.

Hardy's days of independence have looked numbered ever since BP announced it was taking a 30% stake in 23 of Reliance Industries' gas blocks in India covering approximately 270,000 sq km in the deepwater Krisnan Godavan Basin.

Shares of the London Stock Exchange firmed 3.5p to 861.25p following news of its sale of Servizio Titoli, an investor relations and shareholder management company with turnover of €9.3m.

Meanwhile, broker Charles Stanley Securities warns that the indicated rejection by the Australian government of the takeover of ASX, the Australian exchange group, by Singapore Exchange on grounds of national interest is a reminder of the execution risks in the proposed LSE/TMX merger. It sets an unfavourable precedent.

Impressive interim results helped Andor Technology leap 45.13p to 439.25p. Trading has continued to be strong in the first-half of the year, with a healthy order book and sales pipeline and planned product launches in the second-half. Profits for the year are now expected to exceed market expectations.

Sable Mining closed flat at 23p following the acquisition of an 80pc stake in Red Rock Mining, owners of the highly prospective Bagla Hills iron ore project in Sierra Leone.

Profit-taking left Patagonia Gold 2p lower at 45p despite a bullish progress report on its Lomada gold project in Santa Cruz province, Argentina.