Market report: Wednesday close
The FTSE 100 closed the day back down below 5000, following the latest market turbulence.
Market report: Latest news from the Stock Exchange
For most of the morning, stock market investors were left to grope around in the dark. No, the lights had not blown a fuse - but the traditional City way of maintaining an orderly market at all times appears to have done so.
In early trading this morning, shares of HBOS suffered another bear raid with the price briefly tumbling more than 40% to yet another new low of 88p. Once again the alarm bells sounded and stories began doing the rounds that the UK's biggest mortgage provider was in trouble. The Financial Services Authority retorted that as far as it was concerned HBoS remained in rude financial health and there was nothing to worry about.
Then the BBC ran the story that Lloyds TSB, unchanged at the end of the day at 279¾p, was poised to launch a rescue bid for HBOS worth 300p a share within 24 hours, and with the blessing of the regulators. Such a deal would create a bank with a value of £30bn.
The HBOS share price subsequently bounced back to cut most of its losses, then slipped again, closing 34.9p down at 147.10p. Such was the volatility in the shares that circuit-breakers kicked in on at least four separate occasions to allow for a cooling-off period.
During that time more than 260m shares had changed hands, and by lunchtime there was still no sign of an official announcement from either HBoS or Lloyds TSB to either confirm or deny the story.
Traders were left seething. They said trading in both HBOS and Lloyds TSB should have been suspended at the outset if it was known that both sides were in takeover talks. The Takeover Panel should have insisted that both sides put out an official statement to clarify the situation. Instead Harry Hedge Fund and his pals were allowed to wreak havoc, while private investors looked on from the sidelines.
Meanwhile, shares generally posted a 'dead-cat bounce' following several days of heavy losses.
Investors were cheered by the US Government's £47bn rescue of insurer American International Group, but the failure of the Federal reserve to cut interest rates took some of the edge off the market's celebrations.
The FTSE 100 index fluctuated wildly throughout the morning. By the end of the day, the index of leading shares, which as lost more than 7% already this week, slipped below 5000 to close 113.20 points down at 4912.4. The broader FTSE 250 index fell 99.30 to 8309.8.
Barclays celebrated its acquisition of Lehman Brothers' investment banking arm from the receiver for a snip at $1.75bn (£97.7m) with a rally of 9¾p to 317¾p. Shore Capital says the deal offers Barclays a strong growth opportunity at an attractive price.
But Royal Bank of Scotland dipped 19.7p to 169.4p, and HSBC retreated 38¾p to 801p. City speculators say it might consider gate-crashing the HBOS/ LloydsTSB party.
UK insurers also breathed a sigh of relief after learning that AIG had been bailed out. After earlier gains, Prudential closed unchanged at 486¾p, while Friends Provident slipped 0.6p to 81.10p, and Standard Life fell 2¼p to 229¾p.
Inter-dealer broker Icap rallied after Dresdner Kleinwort began coverage of the shares with a buy rating and 555p target, but slipped back to 400p, down 7¾p at the close. Dresdner says that despite recent financial instability, Icap remains one of the better growth opportunities in the financial sector.
Miners staged a fightback, led by bid target Lonmin adding 91p to 2633p. But it remains well below the 3300p-a share being offered by rival Xstrata, down 179p at 1926p. Rio Tinto also fell 222p to 3650p.
UBS cut its rating on Electrocomponents, down 9¾p at 161¾p, from neutral to sell and trimmed its target from 155p to 150p because of the deteriorating outlook for UK manufacturing, which accounts for around 50% of its profits. The broker warns there is much less scope for margin expansion.
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Tomorrow's Agenda
DIY group Kingfisher surprised the City in July when it reported a 0.2% rise in like-for-like sales despite the seizure in the housing market, but chief executive Ian Cheshire is expected to strike a rather gloomier note when he unveils first-half results. Analysts believe the B&Q owner's overall performance will have been solid - with brokers at ING predicting pre-tax profit of £218m, the top end of forecasts - dire figures from rival Homebase and the lack of summer sunshine have sparked talk that sales at B&Q will have plunged in recent weeks as consumers failed to splash out on garden furniture and barbecues.
The Office for National Statistics, under fire in recent months for the volatility of its retail sales statistics, releases the much-criticised figures. Analysts expect sales to have slid 0.5% on last year. But whatever the number, few economists are optimistic about the outlook for consumer spending.
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