Stock market report: Monday close

By MICKEY CLARK FOR MAILONLINE
Updated:

 

London Stock exchange traders,

Keeping watch: Latest news from the London Stock Exchange

Shares went into a nose-dive on both sides of the Atlantic this afternoon as investors continued to fret over the economic slump and banking crisis.

On Wall Street, the Dow tumbled 346.31 points to 8482.73 on the back of a bigger-than-expected drop in November's manufacturing output and construction spending.

City investors also started the week on a drab note following the collapse of London Scottish Bank and crisis talks between New Star asset Management and its bankers. The FTSE 100 index tumbled 249.56 points to 4038.45 in wafer thin trading. Fewer than 1.5bn had changed hands by late afternoon.

The Bank of England monetary policy committee is expected to signal another cut in interest rates later this week in a bid to boost the economy.

Brokers take the view that mining shares must be worth a punt because they have already fallen so far this year. But there is little cheer out there at the moment to drive their rating higher.

Take Xstrata, for instance. Shares in the anglo-Swiss mining giant today fell 116½p to 814p after it, and its joint venture partner Merafe resources, were forced to shut down five furnaces producing ferrochrome - a key ingredient in the manufacture of stainless steel - because of falling demand. Xstrata has blamed the downturn on the global economic slump.

But Credit Suisse has decided to start pushing former takeover target Rio Tinto, down 183p at 1425p, as its top pick in the sector.

It has moved against the grain and resumed coverage with an outperform rating and price target of 2700p following BHP Billiton's decision last week to drop its proposed offer of 6000p a share. Credit Suisse claims Rio's shares have been 'massively oversold', and this is arguably the best buying opportunity since October 1997 when they suffered during the asian crisis.

Credit Suisse has also resumed coverage of BHP, down 107p at 1082p, with an outperform rating and a 12-month target price of 1500p. BHP shares are up about 6% since 20 November.

Société Générale has renewed coverage of BHP with a buy rating and 1500p target, and Rio with a hold rating and 1700p target following the failure of the takeover.

It reckons BHP will benefit from its defensive profile while Rio's valuation is now just about right.

Elsewhere in the sector, Investec has cut its target on platinum producer Lonmin, down 155½p at 696½p, from 1100p to 1000p and repeated its hold rating. New chief executive Ian Farmer last month announced initiatives that Investec believes should ensure the company 'stays alive' in today's horrendous platinum markets.

Mitchells & Butlers fell 17p to 145¾p. Deutsche Bank has repeated its hold rating on the shares but slashed its target from 315p to 200p in the wake of last week's decision not to pay a dividend, and to cut capital expenditure to conserve cash.

Deutsche says the move make sense because of the credit crunch, but the outlook remains uncertain as the economy tips into recession.

Punch Taverns fell 19¼p to 106¼p. Bank of england figures showed mortgage lending collapsed by 70% in October, reaching the second-lowest figure on record.

It is not the sort of news housebuilders want to hear. They have already taken big hits to their share prices and balance sheets because of the collapse in the housing market, which has led to big write-offs.

Taylor Wimpey dropped 1.75p to 9.25p, Bovis Homes 10¼p to 303¾p, Bellway 17½p to 491p and Redrow 14¾p to 179¼p.

Land of Leather jumped 2½p to 9p after it admitted it had received a number of takeover approaches.

Petra Diamonds marked time at 75¼p - a tad above its record low of 70¼p, in the wake of news that its biggest shareholder, Saad Investments, had raised its holding by 1.5m shares to 79.1m shares, or 43% of the company.

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Tomorrow's agenda

Tesco delivers third-quarter figures, with ING forecasting like-for-like sales growth, excluding fuel, of 2.5% in the UK. But the broker has warned that the supermarket giant's figures may disappoint, saying investors should be braced for the possibility of sales growth below 2%. With Tesco losing market share and the deteriorating retail environment, 2009 may prove even tougher. Morgan Stanley last week added to the gloom, warning that the entire sector is likely to suffer as food prices tumble.

Thomas Cook has so far defied the economic downturn as Britons have proved unwilling to forgo their week in the sun or on the slopes. But there are signs that consumers are starting to cut back, meaning comments on outlook from chief executive Manny Fontenla-Novoa accompanying the tour operator's preliminary results will be scrutinised. Thomas Cook's main rival TUI Travel last week cut capacity in the UK for next summer in response to weak early bookings, and Cook is now tipped to follow suit.

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