Market Report: Barclays and RBS lifted by stakebuilding talk

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The Independent Online

As UK banks continued to rebound from last week's losses, talk of stakebuilding in two of the sector's heavy hitters dominated yesterday's chat.

Barclays and Royal Bank of Scotland slumped last week amid rumours of imminent write-down announcements, but rallied on Monday. Yesterday, RBS was among the best performers, up 4.09 per cent to 457.75p, after stories emerged of an investor building a 1 per cent holding in the group. Early rep-orts linked the racehorse owner Trevor Hemmings with the move. Later in the day, brokers heard the share buying was carried out by Martin Hughes of the London hedge fund Toscafund, while the Spanish bank BBVA was also in the frame.

Separately, there was talk that Temasek Holdings, the Singapore fund that took a 2.1 per cent stake in Barclays in July, had made further acquisitions of the stock. The bank ended the day up 2.73 per cent at 527p.

Top of the leaderboard was Vodafone Group, as the market backed its bullish interim results. The telecom giant reported a £4.5bn profit for the first half of the year, compared with a £3.3bn loss in 2006, and raised its full-year revenue and profit guidance. With the results supported by Cazenove, Investec and UBS, the stock stormed up 7.42 per cent to 195.5p.

Daily Mail & General Trust strengthened as Merrill Lynch initiated its coverage with a "buy" rating, saying the stock had "compelling value from every angle". The broker noted the shares have fallen 17 per cent in two months, and now trades at a level that undervalues its earnings growth. DMGT closed up 5.53 per cent at 592p.

The FTSE 100 opened lower but rallied with the financials and support from New York to close up 24.5 points at 6,362.4.

The miners had sent the top tier sprawling in the morning, as drifting metal prices hit the sector for the second day in a row. Rio Tinto was down for the first time since BHP launched its mega-merger offer, 4.58 per cent lower at 5,399p. It was the worst performer of the day as the gossips talked of it targeting Anglo American to ward off BHP. One trader doubted the story, pointing to yesterday's weakness in Anglo's shares: 90p lower at 3,239p.

The profit takers sold into Icap yesterday. The interdealer broker had risen in Friday's falling market, as it is seen as a defensive stock in volatile markets. Yesterday, investors leapt at the chance to cash in, and the stock fell 3.71 per cent to 597.5p.

Also down was British Energy Group, after it admitted that the recent reactor closures would hit full-year profits. The group reported a first-half bump in pre-tax profits from £329m to £407m but the profits warning and a failure to provide a timetable to get the reactors back on line sent the stock down 2.42p at 505p.

On the second string, strong results drove VT Group 7.86 per cent higher to 631.5p as it posted a 29 per cent rise in pre-tax profits for the first half. It was rumoured to be considering a tie-up several months ago, and the rumours resurfaced, albeit briefly, yesterday. It was overtaken at the end of the day by Paragon Group, up 13.13 per cent to 226.25p after positive sentiment in the sector.

The retreating oil price, hit by some renewed strength in the dollar, meant JKX Oil & Gas slipped to the bottom of the mid-caps. It gave up 5.06 per cent to close at 309.5p.

Another sector faller was Cairn Energy, which slumped 2.95 per cent to 2,220p on reports that its Indian operation had run into fresh problems with the country's government. Evolution Securities put a "sell" note on the stock, saying investors were better off switching into stocks such as Tullow Oil or Premier Oil.

Market makers were sounding down as the small caps struggled early on. One described the market at lunchtime as "dreadful, there seems to be a loss of confidence – there are no buyers in anything".

The worst hit was the tiddler ice cream company Hill Station. The shares melted 27.27 per cent to 0.2p as it revealed trading since Aug-ust continued to be "difficult", with sales signific-antly below budget.

The luxury resort operator Newfound had lost its sheen yesterday as it was forced to turn to two directors to provide funding. The directors will subscribe to 70 million shares at 10p each to raise £7m. It fell 21.43 per cent to 16.5p.

Ora Capital Partners fell 8p to 119.5p, after talk that Kaupthing had placed 3.7 million of its shares at 115p. At the other end, Sarantel Group was getting into the swing of things, up 18.49 per cent to 165p after it received orders for its recently launched SkyCaddie golf tracker.

The internet-focused investment group Hecta Media starts its first day of trading on AIM today. The group, which was brought to market by Beaumont Cornish, is expected to be worth up to £7m.

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