FTSE 100 close: 'Fags', Kaz and Rio higher

By ADRIAN LOWERY
Updated: 12:09 EDT, 20 August 2009

London shares were higher in thin trade today as half the City decamped to the Oval for a day's cricket.

The FTSE 100 index finished 66.9 points up at 4,756.6, after gains on world markets overnight: the Nikkei and Hang Seng in Asia both finished 2% higher.

Wall Street also saw gains as markets lifted around the world, with the Dow Jones Industrial Average rising 36.35 points to 9315.51 in morning trading. France's CAC 40 and Germany's DAX were 1.3% and 1.2% higher amid the investor optimism.

Miners were behind much of the Footsie's gains, with Lonmin 56p ahead at 1,440p, Xstrata 38.5p to 810p, Antofagasta 38p to 756p and Kazakhmys 28.5p at 906.5p.

Rio Tinto, the world's second-largest miner, added 23p to 2,334.5p after posting a record drop in first-half profit, and saying it was confident about the future after a tough 18 months.

'The tone today is very much set by the Asian rebound overnight,' said Tim Hughes, head of sales trading at IG Index.

'The whole market is being really driven from a global context and continuing positive sentiment among traders. In spite of the equity market performance over the last few months, no one seems willing to give up the ghost on this rally.'

Mixed news on the UK economy failed to upset the market after retail sales rose by more than expected and borrowing figures pointed to a further sharp deterioration in the state of the public purse.

Banks and housebuilders were encouraged by industry figures showing mortgage lending jumped by 26% during July amid further signs of an improving house market.

RBS lifted 1.7p to 47.7p and Lloyds Banking Group gained 2.53p to 101.25p. Barclays rose 3.9p to 348.9p after Credit Suisse reinstated the shares with an outperform rating and a 395p target.

Among the housebuilders, Barratt Developments lifted 20.8p to 240.9p and Taylor Wimpey cheered 3.2p to 45.9p.

Shares in Diageo fell 3p to 939.5p after ING cuts its stance to 'hold' from 'buy' ahead of the drinks group's full year results.

ING says in a note that Diageo's sales and profits might exceed consensus a bit, but also reduced its target price for Diageo to 956p from 970p.

Morgan Stanley downgraded Capita Group, whose shares fell 0.5p to 663.5p, leading the FTSE 100 fallers' board. Morgan Stanley cuts its rating for the outsourcing group to 'equal-weight' from 'overweight' and reduces its target price by 7% to 700p, down from 750p.

The broker notes that Capita shares have devalued by 20% over the last year and are now trading at less than a 30% premium to the market versus a three-year average of 80%.

The broker points out that while the UK government needs to reduce spending, and this should benefit the outsourcing sector, it thinks it is impossible at present to quantify the opportunity, and far too early to warrant a re-rating of the shares.

Morgan Stanley says in the support services space it prefers Experian, 6.5p up at 525p, Hays, 1.2p up at 102.1p and and Rentokil Initial, 1.8p up at 102.7p.

Cineworld lost 5.25p to 156.5p despite the cinema chain reports a 33% rise in first-half pretax profit, prompting Evolution to repeat its 'buy' rating and Cazenove to keep its 'outperform' stance.

Evolution says Cineworld's valuation is 'still reasonable' at 9.8 times estimated price earnings 2009 and adds 'speculation about Blackstone placing its 47% stake will rise as we approach the 170p flotation price'.

Morse shares rebounded from yesterday's plunge, which was prompted by the announcement that the IT consultancy group had terminated its takeover talks with potential buyers.

Investec, which rates the company as 'buy', today said it was unsurprising that shares fell following the announcement and it sees 'material upside based on the current valuation assuming the company can continue its steady rebuilding'.

The broker said Morse 'is one of the last stocks in the sector not to have rallied from low valuation levels' and raised its target price to 36p from 33p. Shares jumped 3.25p to 29.25p.

Finally, roofing and insulation firm SIG added 8.8p to 133.7p, despite posting a first half loss and warning the near term trading outlook remained challenging.

TOMORROW:

• Rightmove the residential property website, is expected to fuel talk that the housing market is on the road to recovery when it posts results for the first half of the year.