Stock market report: Wednesday close

By Mickey Clark for MailOnline
Updated:

 

Shares on the London stock market briefly dropped back below the important 4000 resistance level today for the first time since October, as the shortsellers appeared to regain the upper hand in Legal & General.

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The life assurer's shares slithered 5.30p to a record low of 40p as more than 30m changed hands. It seems yesterday's reassurance by the company that it does not need a rights issue and was doubling the size of its credit default reserves to £1.2bn has missed the target.

Life assurers generally were asked by the Financial Services authority to stress-test their solvency ratios in the event of the stock market dropping by 60% from its current levels. But some brokers are muttering that if it was carried to the extreme, L&G is already technically insolvent.

The share price has slumped from 128p in the past year after the value of its portfolio of holdings in equities, government bonds and corporate bonds took a hammering.

To make matters worse, L&G has become the target of short-selling with names such as the hedge funds Lansdowne Partners and Crispin Odey's Odey asset Management building up substantial short positions. Rival Prudential, which has already denied it needs to raise fresh funds, fell 18.50p to 261p while Aviva shed 2¾p at 304½p.

Cazenove has dropped its rating on aviva from outperform to in-line. Among the banks, Royal Bank of Scotland shed 2.6p to 18.1p, disturbed by reports that it needs to stump up £8bn for insuring against further losses on its portfolio of toxic assets. Lloyds Banking Group improved fell 0.70p to 50.8p and HSBC rallied from a morning sell-off in Asia, which saw it touch a new 10-year low, with a rise of 9½p to 504p.

The weakness of financials and big falls on Wall Street overnight undermined confidence in the rest of the stock market, and served to extend yesterday's big losses.

Sentiment remains at a low ebb, with investors continuing to fret about the deteriorating banking crisis and global recession, as well as the efficacy of the US Government's economic stimulus package. No one is willing to recommend buying shares in this climate. 'It would be like trying to catch a falling knife,' said one commentator.

In the event, the FTSE 100 index touched a low of 3967.4, before reducing the deficit to 27.30 points at 4006.8 - its lowest since November. The FTSE 100 also had to contend with a number of its constituents going ex-dividend, the equivalent of a 10-point fall.

They included property developer Hammerson, down 9¼p at 342p, fund manager Schroders, 12½p lower at 742½p, BP, off 14&frac75;p at 477&frac75;p, power supplier Scottish and Southern Energy, 41p adrift at 1177p, and mining giant Rio Tinto, losing 13p at 1884p.

Citigroup has raised its rating on Smith & Nephew, down 11½p at 533p, from hold to buy and jacked up its target-from 540p to 618p because it reckons the shares look cheap. The broker says fourth-quarter results from the artificial-joints maker provided reassurance that core business areas have remained relatively immune to economic pressure.

Ridge Mining rose 1½p to 55p on the back of an all-share offer from Aquarius Platinum, down 3¼p at 187¾p. Aquarius will offer one of its own shares for every 2.75 ridge ones. The deal values ridge at 69.4p a share, or £63.8m.

Credit Suisse picked a bad day to lift its rating on Dana Petroleum, down 18½p at 941½p, from neutral to outperform. It also raised its target from 1098p to 1202p.

This follows hot on the heels of Dana's move to buy Bow Valley energy and increase its credit facility.

Carillion shaded 1½p to 228p despite winning a £550m joint-venture contract for the al Muneera development in Abu Dhabi. Al Muneera forms part of the £10bn Al Raha Beach Development.

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Tomorrow's Agenda

Bookmaker Ladbrokes and publisher Reed Elsevier are among the companies reporting in a hectic day in the City. Morgan Stanley warned this month that it expects trading momentum to deteriorate at Ladbrokes, although it may be too early for the impact of the consumer slowdown to be seen in its full-year figures.

Reed Elsevier's results should give outgoing chief executive Sir Crispin Davis a last hurrah. Deutsche Bank expects the numbers to be strong, albeit with cautious comments on outlook.

Kingfisher chief executive Ian Cheshire recently turned to White Van Man to help rescue the DIY chain. With UBS forecasting the group will post a 6% slide in like-for-like sales for the fourth quarter, it seems he could do with all the help he can get.

The B&Q owner is trying to tap into the building sector as consumers cut back on doing up their homes. The move will put it on a collision path with Travis Perkins, which also reports tomorrow. Analysts predict pre-tax profits at the builders' merchant will fall by about a fifth to £207m.

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