Market report: Friday close

By Sarah Marks for MailOnline
Updated: 12:49 EDT, 19 October 2007

A major sell-off was under way on Wall Street tonight, the 20th anniversary of Black Monday, after two respected US blue-chips delivered deeply depressing news to an already nervous investment community.

The Dow slumped 161.70 points to 13,727.30 as Wachovia, America's fourth-largest retail bank, reported a 10% drop in third-quarter profits because of the credit crisis, and warned investors to expect further defaults in the mortgage market.

Meanwhile, Caterpillar, the world's biggest manufacturer of earthmoving machines, posted its steepest shareprice drop in three months as it issued a devastating profits warning in the face of the struggling US housing industry.

With a soaring oil price and faltering dollar, the parallels with 20 years ago, when stock markets staged their worst reversal since the 1929 Wall Street Crash, were eerily present. In London, the FTSE 100 index lost its earlier resilience to fall 81.52 points to 6527.90.

AstraZeneca was punished after unexpectedly losing a key battle to protect its patent for its fifth-biggest drug, the asthma treatment Symbicort. The shares fell 93p to 2461p as investors swallowed the bitter news that the European Patent Office had found in favour of a group of generic manufacturers. They will now be able to launch their own competing product in 2010.

Analysts hastily adjusted their figures. HSBC lowered its target price by 50p to 2850p, saying the ruling will mean the loss of $300 million (£147 million-in revenue from Symbicort. Its non-US sales are reckoned to contribute about 8% of profits. Media giant WPP fell 29p to 665p. Investors were unmoved by Sir Martin Sorrell's hearty message, focusing instead on the fact that organic growth had not matched expectations.

The housing-sector sell-off looked as if it was finally easing after a torrid few weeks. Barratt Developments rose 8½p to 667p. Persimmon was up 11p at 971p and Redrow rose 11¼p to 383p on vague talk of a 500p-a-share offer. Bellway was 21p better off at 1059p and Bovis fell 5½p at 670p.

A positive note from Merrill Lynch also helped the sector, as the investment bank argued that recent heavy selling reflected an erroneous view that the housing market will crash. B&Q owner Kingfisher remains a casualty of the housing downturn. UBS pointed to negative comments from Travis Perkins and John Lewis to justify taking the knife to forecasts. It also noted that the amount of money people borrowed against the value of their houses fell by 17% in the second quarter, the first drop in seven quarters.

The broker said its previous predictionfor flat second-half sales now looks optimistic, and a fall of 1.5% is more likely. Kingfisher slid 6p to 170.7p. An approach for sportswear maker Umbro, most probably from Nike, raised hopes of a bidding war. Umbro was up 20p at 173p.

Lehman Brothers reckons it makes more sense to put your money on Ladbrokes, which fell 6½p to 409¼p, than William Hill, down 12p at 609½p. It rates Ladbrokes overweight with a 475p target and Hills underweight with a 700p target, saying that Ladbrokes has a better business model.

A relatively weak recent performance by Ryanair shares, 0.23 cents lower at €5.54, has prompted ABN Amro analyst Andrew Lobbenberg to identify the budget carrier as a buying opportunity. He believes the Chancellor's decision to switch aviation taxes to levies on aircraft rather than passengers will help the airline's business model.