Market report: Monday close

 

The FTSE 100 plunged more than 200 points as the fall-out from the Bear Stearns collapse shook world market. The London market closed down 217.3 points at 5414.4, with investors fearing worse to come in the run-up to Easter.

Banks bore the brunt of the sell-off, as fears swept global markets that financial institutions were in genuine risk of running into serious trouble.


The ferocity of the stock-market sell off in recent weeks has been such that equities are now yielding more, in terms of dividends, than Government bonds, which are traditionally seen as a haven for investors in times of difficulty, writes the Evening Standard's Mickey Clark.

Dealers say this would imply that the stock market has been oversold or that investors must brace themselves for a series of dividend cuts by leading companies in the months ahead.

The banks have been among the hardest-hit as they suffer a crisis of confidence following the collapse of Northern Rock and Bear Stearns.

Take, for instance, Royal Bank of Scotland, which was struggling to hold above the 300p support level today after the price dropped 29p to 304¾p. Less than three weeks ago, RBS rounded off the bank reporting season with its shares at 410p. Barclays, off 40½p at 392½p, is down from 520p a few weeks ago while Alliance & Leicester is down 36¾p at 475&frac24;p since hitting its high for the year of 736p on 25 January.

Panmure Gordon rubbed salt in A&L's wounds by cutting the shares from hold to sell and trimming its target from 490p to 450p. It also cut HBOS, 67½p adrift at 475p, from hold to sell and slashed its target from 655p to 450p on concerns over the deterioration of underlying assets.

But the sell-off was not confined to the banks. Telephone directories publisher Yell was trading at 332p on 31 January. The shares are now changing hands at 147p, down 20.3p today. Interdealer broker Icap was above 700p a month ago. The price was today off a further 91½p at 506½p. Credit rating agency Experian, down 22p at 358p, stood at 455p on 18 February.

There was no let-up in the selling, with few places for investors to hide. Financial markets are now speculating on whether any other banks will be dragged down by the credit crisis. Moves by the US Federal Reserve to cut its discount rate, the rate at which banks lend to each other, did little to calm nerves.

Wall Street finished almost 200 points lower on Friday, and the selling spilled over into the Far East this morning. In London, losses among second-liners were even more severe, the FTSE 250 index tumbling 325.37 to 9380.7, its lowest since 21 January.

Investors also had to cope with another rise in the oil price to record levels. Crude was changing hands at $111.90 on the futures market. That may be good news for the likes of Royal Dutch Shell, down 42p at 1646p, but it is bad for other companies already struggling to cope with rising costs.

Whitbread fell 7p to 1182p on news it plans to merge its Premier Inn budget hotels business with that of rival Travelodge in a deal that could value the combined business at £3bn. Goldman has cut Whitbread from buy to neutral.

Mitchells & Butlers lost 41¼p to 335¾p, with Panmure Gordon lowering its rating from hold to sell and cutting its target from 500p to 350p. It says M&B's management is not enthusiastic about Punch Taverns' merger proposals. Punch dropped 47p to 522½p.

Shares in TV Commerce were suspended at 0.375p on AIM at the company's request. KimCor Diamonds, down 0.25p at 4.75p, has restarted production at the SMI4 tailings plant, which it bought from De Beers. The diamond producer and exploration company said initial processing rate of the plant will be 60,000 tonnes a month.

Solar Integrated Technologies, unmoved on 91p, has been granted a patent in the US for its BIPV solar roofing system. The patent, valid until 2023, covers its roofing system, which has flexible membranes.

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TOMORROW'S AGENDA

• Amid speculation of a difficult February for retailers, Debenhams will be in the spotlight as it updates the City on trading. The UK's second-biggest department stores chain, which issued three profit warnings last year, said at the end of 2007 its recovery was gaining momentum as it overhauled aged stores. But analysts fear sales will have fallen last month. British Retail Consortium numbers showed the clothing sector had performed poorly.

• February's Consumer Prices Index is expected to fuel fears over inflation. The CPI rose to 2.2% in January - above the Government's 2% target for the fourth month in a row - as energy and food costs climbed. But economists predict it will shoot up to 2.5% on the back of soaring commodity prices, exacerbated by a change to the way the figure is calculated, so the full impact of gas and electricity bill increases will be felt in full this month, rather than spread over four months.