Investors decided today that retailers had been whacked a little too much in the past few days on worries about rising interest rates.
So Tesco — which was a particular weak spot after an uninspiring trading statement earlier in the week — recovered 8.75p to 430.75p, while rival supermarket group Morrison added 5p to 292p and Argos owner Home Retail Group rose 12p to 451p. Morrison also benefited from a note from Dresdner Kleinwort, with an add recommendation and a 315p target price.
"If an investor is willing to pay 595p for Sainsbury on property considerations then on the same valuation drivers, Morrison should be trading on 383," said Dresdner. "We do not believe all this arbitrage is justified but we can see 10% upside on this angle."
That is not to say the general concerns about higher borrowing costs have disappeared. Traders said the Bank of England was likely to raise rates again imminently, while a rise in US bond yields signalled that investors expected the Federal Reserve to follow suit, or at least avoid any rate cuts. So despite a surge in the shares of private equity group Blackstone when it made its US market debut, the Dow Jones Industrial Average was nursing a loss of more than 50 points by the time London closed.
There is also the small matter of the coronation of Gordon Brown next week. David Buik of Cantor Index said: "The country is entering a vortex of uncertainty — so best investors take some risk off the table. Conditions are likely to remain volatile for some weeks."
So the FTSE 100 fell 28.6 points to 6567.4, while the FTSE 250 slipped 28 points to 11,589.1.
Among the losers, National Grid was down 13p to 719.5p after Goldman Sachs downgraded from neutral to sell, while Barclays fell 9p to 719.5p. For once the bank's move was nothing to do with the interminable bid battle with Royal Bank of Scotland over ABN Amro. Rather it came after the bank said it had some exposure to funds that have lost money in the US subprime mortgage market, but maintained this was not material.
Housebuilders and property groups — which have been out of favour because of the worries about dearer money — fell back further on news of an investigation into the housing market by the Office of Fair Trading. Persimmon fell 4p to £12.03, although Evolution Securities still recommended investors buy the shares ahead of a planned trading update on Monday.
"We cannot see the advantage of yet another investigation which will simply discover the root of the problem is the well documented lack of available housing land," said Evolution. "If the OFT report is negative it is hard to see what punitive action it is able to take."
But rival Galliford Try added 1.5p to 158p after Panmure Gordon repeated its buy recommendation despite the OFT probe. The broker said: "For Galliford there is potentially good news as this review could drive the regeneration process harder and here the company is well positioned."
Also on the way up was BAE Systems, 5.75p better at 438.75p after the US administration gave the green light for its £2bn purchase of American defence group Armor Holdings, despite recent speculation the deal could be heavily scrutinised after bribery allegations against the UK giant.
Numis said BAE's rating made it "the cheapest stock in the sector" and moved its recommendation from add to buy.
Publisher Pearson put on 11.5p to 836p as it announced it had decided not to make a joint bid with GE for Dow Jones, the publisher of the Wall Street Journal, leaving the way clear for Rupert Murdoch's News Corporation. News already has a $5bn (£2.5bn) bid for Dow Jones on the table.
British Gas owner Centrica moved higher again ahead of Monday's planned trading statement, as takeover speculation refused to die down. Its shares closed up 6p at 385.5p.
The transport group Stagecoach added 3p to 169p as it won the East Midlands rail franchise, but the present incumbent National Express fell 9p to £10.80.
The news came a day after Go-Ahead, 21p lower at £24.14 was declared the successful bidder for the West Midlands franchise
There was excitement at retailer Blacks Leisure, up 55p to 330p after it emerged that Mike Ashley's Sports Direct had requisitioned an extraordinary general meeting to oust the Blacks board and prevent its plans to sell its Freespirit surf and skateboarding business. Sports Direct, which owns 29.4% of Blacks, added 0.5p to 203p.
Lower down the market, health and leisure products group ADDleisure jumped 2p to 5.625p as BUPA took a 29.9% stake in the business, paying 5p a share. BUPA has also agreed to pay another £3.7m for a 50% holding in ADDleisure's Wellness Holdings division.
The people behind ADDleisure include David Turner, the co-founder of LA Fitness, and Allan Fisher, founder of Holmes Place. With BUPA's support, they want to strengthen and develop the company's position in the corporate and consumer healthcare markets.
The AIM-listed exploration group Serica Energy added 8.5p to 112p after a bullish note from Cazenove following the company's annual meeting and a short presentation to analysts yesterday. Cazenove put an outperform rating on the shares, saying: "Although no new material was disclosed [at the analyst's presentation], the meeting underscored the breadth and reserve potential of Serica's portfolio."
There was some profit taking at the biotech group Renovo, not least by a leading shareholder Atlas Venture. Renovo this week signed a deal with Shire over its scarring treatment, prompting a surge in its share price. Atlas took advantage, cutting its stake yesterday from 6% to 4%. Renovo shed 15p to 212p.
Finally, the department store group Beale was steady at 65p despite the company announcing a fall in half-year profits from £2.01m to £875,000 and warning that, unless there was a major boost to sales during the rest of the financial year, it would make an annual loss. "We see no immediate evidence of an improvement in the trading environment for department stores such as Beales," said chairman Mike Killingley. "We also believe it would be in shareholders' interests if we could enhance earnings by acquiring or merging with other businesses — at the right price — which fit our skills and product mix."
Richard Ratner at Seymour Pierce repeated his sell recommendation, saying: "The company is sub-scale and is still paying for the underinvestment of the previous regime. Debt is higher at halfway stage, as are stocks.
"The company admits that it is looking for an acquisition, but, despite it working within its existing facilities, we wonder whether, given the trading performance, the bankers would want to increase their exposure to it? Indeed, £5m of the debt is repayable in October 2008.
"Conversely, it would like to find a buyer. However, despite net assets of roughly 100p a share, likely to reduce to around 90p by the year end, given its trading performance and the pension deficit, a takeout price could turn out to be 50-60p.
"Moreover, it has been looking for some time for a partner, but no-one appears to be very eager. It could eventually die without a bid."