Market Report: Easing oil price hits oil majors and miners

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The Independent Online

A fresh flurry of bid speculation failed to lift the pall over the London stock market cast yesterday by resource companies hard hit by easing oil prices.

Major oil producers were marked sharply lower after a barrel of crude slipped below $60 in London. BP fell 10.5p to 563.5p;Royal Dutch Shell eased 19p to 1,740p.

Where the oil sector led, miners followed. Their losses were steeper still, with Vedanta Resources 81p lower at 1,112p, BHP Billiton down 34p at 853p and Rio Tinto off 55p at 2,352p.

That the sector was so badly and indiscriminately mauled was the more surprising given the relatively steady prices for metals (except gold) and upbeat comments on pricing prospects from the Australian government overnight.

September has been a terrible month for London-listed miners. BHP shares have fallen by almost a fifth, Rio Tinto by about 16 per cent.

With the sector traditionally a firm favourite among many hedge funds, it was perhaps no surprise that some in the City blamed the severity of recent declines by such huge companies on heavy short-term selling by hedge fund managers.

The FTSE 100, heavily weighted with oil and mining groups, fell 24 to 5,798.3 as almost 2.8 billion shares changed hands. The FTSE 250 lost 28.2 to 9,755.8.

London's weakness came despite a positive start on Wall Street, where the Dow Jones was about 38 points higher in early trade on relief at the easing oil price. Lower energy costs generally bolster companies' profit margins.

The cruise company Carnival rose 49p to 2,434p on similar considerations and positive comments from Evolution Group.

Many of those to improve did so on a fresh wave of takeover talk. The bid speculation surrounding Hanson refused to disperse. Last week, it was said the Mexican cement maker Cemex was teeing up an offer. Yesterday, it was a "Dubai consortium" rumoured to be interested in paying 840p a share for the British building materials group, which rose 7p to 687.5p.

A €4.4bn (£3bn) deal in the European pharmaceuticals sector spurred Shire 14.4p higher to 844.5p on hopes that it may be the next to be targeted.

Banks were in focus after the chief executive of Bank of America, Kenneth Lewis, confirmed he would consider a European acquisition if the price was right.

In the past fortnight, BoA has been tipped as a potential buyer of Barclays, unchanged at 659p, and the Dutch group ABN Amro. Informed sources thought neither was likely.

Among the second-liners another perennial bid target, the condom manufacturer SSL International, was chased 18.25p higher to 336.75p on rumours that Procter & Gamble was circling. Previously, Reckitt Benckiser had been touted as a potential suitor.

Kesa Electricals, the retailer often seen as vulnerable to a bid, improved 8.25p to 339.25p on optimism ahead of interim results later this week.

The healthcare and banking software group Misys fell a further 4.75p to 226p after another potential buyer - America's Fiserv - walked away. A management buyout led by Kevin Lomax, the chief executive, is now the only offer still on the table.

Meanwhile, Autonomy was 14.5p better at 448.5p after the intelligent search software specialist gave an upbeat assessment of pros-pects for the next five years.

Similar comments from Chemring lifted the defence group 45p to 1,455p.

Cautious comments from Goldman Sachs hit the electronics and security specialist Laird Group. The shares fell 16p to 364.5p after sector analyst James Moore told clients a weakening US housing market meant he no longer rated them a buy and cut his target price to 410p from 450p.

Goldman also downgraded FKI and removed the engineering group from its pan-European buy list on concerns that profits had not grown as expected. The shares fell 1.5p to 88p.

On the Alternative Investment Market, Frontera Resources jumped 9.5p to 72.5p after it emerged that Spyros N Karnessis, an independent director of the mining minnow, had bought 150,000 shares at between 58p and 68p each.

HandMade Group, the film-production company founded by the former Beatle George Harrison, rose 2.5p to 24.5p after unveiling funding for its first film since joining AIM in May.

A profits warning saw the online betting minnow Leisure & Gaming tumble 8p to 36.5p. Panmure Gordon told clients to sell Gaming VC shares after the online casino provider unveiled interim profits 40 per cent lower than at this time last year. They fell 90p to 156p.

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