Market Report: Competition fears take their toll on Mm02

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Ever since mm0 2 rejected KPN's takeover offer in March, shares in the UK mobile phone group have been in retreat and yesterday they lost a further 2.75p to 89.75p as Merrill Lynch turned more cautious about the group's prospects.

Ever since mm0 2 rejected KPN's takeover offer in March, shares in the UK mobile phone group have been in retreat and yesterday they lost a further 2.75p to 89.75p as Merrill Lynch turned more cautious about the group's prospects.

The US broker warned investors that competition in the UK mobile phone market is heating up and cited evidence of new pricing promotions and increased marketing activity. Merrill certainly has a point. Hutchison's 3 has begun an aggressive summer campaign following the arrival of its new LG handsets, while various "virtual network" players continue with their drive to win customers. These include Virgin Mobile and Tesco Mobile.

Merrill was also not too keen on the fact that mm0 2 is so dependent on the UK market. It is estimated that the group generates about three-quarters of its earnings in Britain, leaving it very exposed to what is an increasingly competitive part of the world in which to operate. And for those hoping for a return bid from KPN, Merrill suggests such a scenario is looking increasingly unlikely given recent news that the Dutch group has increased its share buy-back by ¤1bn. After all that, it is no surprise that the US broker downgraded its rating on mm0 2 to "neutral" from "buy".

In the banking sector, rumours that Spain's BSCH is looking to raise cash in the bond market led to suggestions that it may be thinking about a fresh move on Abbey National. Such hopes pushed Abbey shares 0.5p better to 485p. Lloyds TSB nearly beat Vodafone in the volume stakes. Some 180 million share in the banking giant changed hands as the stock fell below its November low of 396p, closing 2p weaker at 395p. From a purely technical viewpoint, dealers reckon Lloyds is vulnerable to further falls next week after its shares crossed the November low.

The pharmaceuticals sector had another bad day. GlaxoSmithKline dropped 16p to 1,045p, AstraZeneca gave up 35p to 2,294p and Shire Pharmaceuticals retreated 13.5p to 439.5p. The weakness was partially caused by a sales warning from the US sector giant Pfizer. Meanwhile, the latest industry data pointed to a continued deceleration in volume growth for branded medicines. Although the decline in June volumes was not as extreme as the one seen in April and May, analysts warned that it does not bode well for the upcoming pharma results season.

JJB Sports put on 1.75p to 244.25p in response to an upgrade from Dresdner Kleinwort Wasserstein. The German broker said the fall in the retailer's shares since last week's disappointing AGM has been overdone and so raised its rating to "buy" from "hold".

Goshawk rose for the fourth day in a row, gaining 0.75p to 45p in heavy volume, further fuelling speculation that the insurer is about to receive a bid. City dealing rooms were alight with talk of a 55p-a-share offer for the group. Dealers reckon the offer may be an all-share approach, which could well disappoint some short-term traders.

But the takeover of Goshawk would be great news for its long-term investors, who have seen the value of their holding halve over the past 12 months. The main cause of the disaster at the group was its Lloyd's of London division, which was unfortunately involved with the insurance of the Columbia space shuttle, which crashed in 2003, and underwrote business for the now collapsed Accident Group.

ML Laboratories ticked 1.25p better to 18p in response to the purchase of 24,500 shares at 19.5p by Paul Ballington, an executive director at the biotechnology group. Torex Retail gained 1.5p to 58.5p on news of a £3m order for its software from Co-op Pharmacies. Evolution Beenson Gregory said the contract win helps underpin market forecasts for Torex. And it argued that the group's shares look very cheap at current levels.

Newport Networks rose 10p to 132.5p on talk that the company is close to securing a number of new contracts. Gossips reckon news to this effect is likely within the next two weeks. Something of a buzz also surrounded Debt Free Group, 3p better at 86.5p. Dealers reported talk that the debt services group has enjoyed strong trading over the past six months and suggested that upgrades to the company's profit forecasts may soon be required.

SP Holdings jumped 1.5p to 19p after it was announced that the group's chairman, Simon Eagle, had stepped down. His 3 per cent holding in the marketing and financial services group was sold on Thursday.

Meanwhile, yesterday a stake of more than 30 per cent, belonging to a number of Mr Eagle's associates, was placed by Seymour Pierce with various institutional investors, at just 12p. This now draws a line under Mr Eagle's involvement with SP Holdings. But something of a mystery surrounds him. On Thursday, he also resigned as a director of the AIM-listed Merchant House and Fundamental-e Investments.