LONDON (ShareCast) - London's blue chips have recovered a little after falling early on but remain in the red.

HBOS and Standard Chartered lead the banks lower. Marks & Spencer is also under pressure. HSBC yesterday lowered its rating on the retailer to ‘neutral’ from 'overweight' saying it expects a tough 2009 for the group. Next and Kingfisher are also lower.

Poor data added to the retail gloom. Retail sales fell again in July, making it four down months out of five now, with “frivolous shopping off the agenda”, according to the British Retail Consortium. Things could get worse, warned the BRC, as like for like sales dropped 0.9% last month, while total sales were up just 1.7% against last July, one of the worst performing months of 2007.

ITV leads the risers, helped by continued bid talk.

In the FTSE 250, housebuilders started well following strong gains yesterday but are now among the heaviest fallers. Barratt, a strong gainer yesterday helped by stake-building by US firm Polaris is down 5%.

The experience of the US does not bode well for the UK newspaper sector, JP Morgan said as it lowered its rating on Trinity Mirror to ‘underweight’ from ‘neutral’. The Mirror publisher is also among the heaviest fallers.

UBS has lowered its rating on Old Mutual to ‘neutral’ from ‘buy’ and cut its target price to 108p from 132p, following the South Africa-exposed insurance company’s interim results last week.

Merrill Lynch predicts a worsening trading environment for Speedy Hire over the next couple of years and downgrades its rating on the tool hire specialist to ‘neutral’ from ‘buy’.

Grainger has given the sector a lift with a trading statement. Trading reamns tricky it said, but it is still achieving sales of its residential properties.

Elsewhere, Tesco has announced plans develop a wholesale cash-and-carry business in India, with an initial investment of up to £60m in the first two years. The new wholesale outlets will be designed for the Indian market following local research. Tesco is also entering into an exclusive franchise agreement with Trent, the retail arm of the Tata Group.

InterContinental Hotels posted a 29% rise in first-half operating profits to $284m, in line with forecasts, but added that growth slowed through the second quarter, and market conditions have become "more challenging, particularly in the US." Continuing revenue in the six months to June was up 14% from $832m to $952m and overall group operating profits, including discontinued operations, rose 28% to $291m.

Broker and bid target Collins Stewart's profits slumped by 82% in the first half to £9.6m from £52m. "Market conditions are obviously challenging and have adversely affected the Capital Markets division, " chairman Terry Smith said. The interim dividend falls to 1.3p from 2.5p.

Glasgow based engineer Weir delivered an 85% rise in half year pre-tax profit and is confident of achieving further growth for the full year.

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