Yesterday's trading: World sell-off sparked

By Geoff Foster for MailOnline
Updated: 03:00 EDT, 10 August 2007

World stockmarkets were running scared after BNP Paribas, the biggest bank in France, triggered another wave of selling on both sides of the Atlantic by freezing withdrawals on £1.4bn of funds hit by US subprime mortgage difficulties.

Frayed nerves were further strained by talk that a major hedge fund had gone belly up and that German banking giant WestLB had caught pneumonia in the US housing market.

As share prices dropped like a stone, dealing rooms lived in constant fear of a broader economic contagion from the subprime property slump.

Merrill Lynch has recently warned of a pending global credit crunch, but dealers were still flabbergasted to hear that the European Central Bank yesterday had to inject an unprecedented £65bn into money markets in order to shore up a chronic liquidity shortage.

Overnight borrowing rates had shot up to 4.7%, their highest in almost six years, amid concern banks face growing losses on investments linked to US mortgages.

Market makers, as always, took no prisoners as the fragile Footsie plummeted 165.9 points before closing 122.7 lower at 6,271.2. The FTSE 250 lost 247.20 points to 11,208.

Wacky Wall Street immediately lost Wednesday's 153-point gain and found itself 241 points down within five minutes of the opening.

AIG, the world's largest insurer, rocked the boat by saying residential mortgage delinquencies and defaults are becoming commonplace, while Home Depot, America's DIY giant, said that the £5bn purchase price of its contractors' business may have to be cut because of the current squeeze on credit.

Financials were hit by liquidity fears. HBOS lost 46½p to 913p and Barclays 31p to 681½p. Hedge fund giant Man Group dropped 38p to 527p as persistent selling swelled turnover to a hefty £74m. The worrying market trend left investor 3i 65p down at 1056p, insurer Standard Life 22¼p off at 318¾p and Royal & Sun Alliance 5½p easier at 135½p. Nervous selling ahead of today's interim results saw Old Mutual fall 6½p to 161½p.

The surrounding malaise clipped British Airways' wings and the close was 15½p lower at 402½p. But analyst Andrew Fitchie at Collins Stewart says the shares are too cheap and the airline remains a sitting duck for a bidder.

Over the past five years, BA has paid down £5bn of debt; cashflows have and continue to strengthen. A bidder could buy the business today for £4.8bn and in five years' time have paid down the acquisition cost and own BA for free. Fair value is 580p.

Ahead of tomorrow's big Premiership kickoff and talk of a pending bullish circular, satellite TV giant BSkyB scored a gain of 17½p at 694½p. With rumours of a bid from National Australia Bank refusing to lie down, mortgage bank Alliance & Leicester retrieved a 43p deficit to close 13p better at 1120p.

Vague takeover gossip helped insurance broker Benfield add 16p at 339p. Jewellery group Signet lost its sparkle at 99¼p, down 4p, after showing a weakening in second-quarter underlying sales growth in the US.

Sellers zapped Game Group, which fell 25½p to 171p after the Office of Fair Trading decided to refer the computer and video games group's acquisition of Games Station Ltd to the Competition Commission.

Recruitment company Imprint jumped 22½p to 185¾p following a 210p-a-share bid approach from directors backed by Alchemy Investments. Chief executive Brian Hamill owns 5.7%. Lock-maker Servocell collapsed 16p to 11½p after warning that revenues for this year and next will be significantly lower than expected due to delays in its first Ready To Go application and other projects. DIC Entertainment dived 16p to 65p after teaming up with fast food chain McDonald's in a legal action against Cornerstone Overseas Investment, a related company of China Retail Management.

Buyers filled their boots with Futura Medical, 7½p better at 59¼p, after the pharmaceutical company reported positive results from a user study of CSD500, its novel product to help maintain a full erection when wearing a condom.

Biopharma minnow Taihua declined 2¼p to 23¼p on hearing that major shareholder Hong Zhou had sold around 9.1m shares at 22p a share. And Messaging International, a provider of innovative messaging services, soared 11/8p to 1½p after signing an agreement with Advanced Info Service, the largest wireless operator in Thailand.