LONDON (ShareCast) - Footsie has dipped below the 5,000 barrier as banks come off their best and Wall Street opens lower.

HBOS is leading the blue chip risers, further closing the arbitrage gap that exists between its share price and that of Lloyds TSB, the company that is making an all-share takeover for the mortgage lender.

With Lloyds TSB shares trading at 265.5p, the terms of the offer value each HBOS share at 221p, more than 40p above the current HBOS share price.

The discrepancy can be explained by speculation in the market that the deal will be renegotiated in the wake of developments since the deal was clinched, such as the collapse of Bradford & Bingley.

However, the gap between the implied offer price and HBOS’s actual share price has narrowed since the Prime Minister said he was confident the deal would go through.

Barclays and Royal Bank of Scotland make headway, drawing comfort from last night’s Senate vote on the US rescue plan for the financial sector.

Marks & Spencer notches up a double-digit percentage gain after the retailer reported a 6.1% drop in UK like-for-like sales in the second quarter, in line with most analysts’ expectations and not as bad as the doom-sayers feared. Fellow clothes retailer Next also advances.

Investors were heartened by the company cutting back on spending; capital expenditure this year is anticipated to be around £700m versus previous guidance of £800-900m. Pali International has raised its rating on Marks and Spencer to ‘neutral’ from ‘sell’, saying the company is “off the hook” for now.

In other broker coverage, JP Morgan has raised its target price on public transport operator FirstGroup to 674p from 622p, saying that the company’s strong exposure to buses will help it through difficult economic conditions.

Deutsche Bank has retained its ‘hold’ rating on Punch Taverns despite slashing its target price on the tenanted pub group to 210p from 600p.

Sales growth slowed at bike and car parts retailer Halfords during the second quarter, although the 1.1% fall on a like for like basis was unchanged from the first three months and in line with expectations. The firm reported a 1.5% increase in sales during the 13 weeks to 26 September, less than the 1.7% enjoyed at the start of the year. That meant overall sales were up 1.6% during the period.

Elsewhere in the retail sector, hopes of an interest rate cut lifts DIY outfit Kingfisher.

Today’s house price survey figures from Nationwide underlined the need for a tonic for the housing market, as it showed UK house prices fell for the 11th month in succession. House prices in September were down 12.4% on a year ago, the biggest annual fall in the history of the Nationwide’s house price index. Rate cut hopes also lift plumbing supplies companies Wolseley and BSS.

Rio Tinto’s chief executive Tom Albanese has reiterated the mining group’s rejection of the takeover bid from rival BHP Billiton and said the company still intends to get shot of $10bn in assets this year.

Advertising giant WPP says it hostile offer for market research group Taylor Nelson Sofres is final and will not be increased. The bid, worth 173p in cash plus 0.1889 of a new WPP share for every TNS share held, values the UK mid-cap at 259.2p a share, or about £1.14bn.

Anglo-American pharmaceuticals giant Glaxo SmithKline is to pay insurance companies $40m in settlement of a long-running legal dispute over its Paxil drug. The US District Court of Minneapolis approved the settlement, ending a national class-action suit against GlaxoSmithKline (GSK) brought by law firm Baum, Hedlund, Aristei & Goldman.

Mitsubishi UFJ Trust and Banking Corporation is buying a 9.9% stake in fund manager Aberdeen Asset Management from existing shareholders as part of a business and capital alliance.

Axon has withdrawn its recommendation of last month’s 600p a share offer from Infosys in favour of a better bid for the business services software specialist worth 650p from HCL Technologies.

Fashion group Ted Baker saw like-for-like revenue growth of 8.2% in the 28 weeks to 9 August, indicating a slight slackening in growth during June and July. The group had previously indicated like-for-like sales growth of 8.4% in the 19 weeks to 7 July. Profit before tax rose to £7.4m from £7.0m, while the interim dividend has been lifted from 5p to 5.25p.

Wolfson Microelectronics warned it expects fourth quarter revenues to come in below its previous guidance following a material reduction in order intake and a higher level of rescheduling of orders across a broad range of applications and customers. It now expects fourth quarter revenues to be in the range $45m to $50m.

Electronic tagging firm Dmatek estimates it will receive between $22m and $26m in revenue from two new state-level contract wins in the US over the next five years. The deals will see the company’s presence monitoring systems, 2-piece GPS tracking units and 1-piece, wearable tracking devices will cover over 4,000 offenders and parolees.

Strong nickel and zinc prices leave Finland-focused miner Talvivaara Mining confident about its short-term outlook. However, the stock falls back in line with other metal stocks.

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