Market Report: Groggy London picks up New York's hangover

"Rates rise, not many dead" was the story of early-morning trading as the Bank of England raised interest rates to 5.75 per cent. Takeover rumours were few and far between on a tentative day for the market which was dragged down by the US.

The FTSE 100 initially shrugged off the rate hike, dropping slightly, as most of the downside had been priced into the markets over the past few weeks. But it slumped 37.9 at the close after the US woke up weaker, with Independence Day hangovers and fears over bond yields.

Blue-chip property stocks took a hit once again with Hammerson down 17p and British Land hit by 4p. Land Securities managed a late rally to hold steady at 1,768p.

The companies were unable to shrug off the unease around the sector, despite backing from a research note released by Deutsche Bank. It said groups had been hit particularly hard and most of the downside was now factored in. The broker added it expected a private equity bid for one of the companies in the real estate sector before too long, moving all three on to a "buy" recommendation.

The Apple effect rebounded on Vodafone after O2 emerged as the likely distributor for its dazzling new iPhone in the UK. The news surprised investors who drove Vodafone to record highs last week after reports it would sign a Europe-wide distribution deal for the in-demand phone. The UK telecoms group shed 4p at 162.1p.

Mining stocks were again the pick of the top tier, with Xstrata, 61p higher at 3,170, and BHP Billiton, up 25p at 1,462p, topping the index, backed by a slight rise in metal prices.

There were further weather woes, this time for insurers. Aviva estimated it would have payouts of £175m in the aftermath of the floods that hit the UK in June. After ending yesterday as one of the risers, it closed down 10.5p at 757.5p. Its rival Royal & SunAlliance managed to shrug off the flood pay-offs, estimated at £55m, adding it would still hit full-year targets. It was among the top risers, up 0.5p to 150.7p.

Merger and acquisition chat was pretty tepid, and the top risers and fallers in the mid tier were driven mainly by financial announcements.

Top of the pile was Game Group, which announced a 45 per cent rise in sales in the first half over the previous year. The group, which has trebled in value since the start of the year, has benefited particularly from the popularity of the Nintendo Wii consoles. It closed 13p up at 195p.

Michael Page, the recruitment business, was also near the peak of the FTSE 250 after announcing bullish results. It recorded second-quarter profits of £121m, up almost 40 per cent on the corresponding period last year, causing brokers to heap "buy" recommendations on the stock. All except Citigroup, which maintained its "hold" advice, despite being the house broker. The group, which has trebled in value over the past three years, closed up 35.5p at 595p. Cookson Group was the biggest faller after an uninspiring trading update, down 53.5p to 693.5p.

Investors were happy that the technology company Spirent Communications, has finally sold the loss-making division SwissQual. The $3m (£1.49m) sale to private investors was announced yesterday, causing the stock to rise 1.25p to 77.5p.

Broker support boosted the struggling retailer Woolworths. Panmure Gordon upgraded its recommendation to "buy" after it said the chain was improving. Panmure is backing Woolies to break even this year after losses last year, and added "the presence of Baugur on the shareholder register adds some speculative upside to a valuation".

On AIM, investors dropped Renewable Power and Light like a hot coal, after it derailed yesterday. The group was forced to request a temporary suspension of its shares following problems with its palm oil supplier. The green-energy group asked for the suspension until it has clarified its financial position. One market maker said the stock had been favoured by the market since listing in December. "It is a heavily-traded stock and backed by some big-name institutions. It's sure to be trading at a pretty heavy discount when the suspension is lifted," he added.

Traders on AIM will be watching another green-energy company with interest today as Jetion Holdings prepares to list. There is some buzz around the manufacturer of high-performance solar cells. It is the latest Chinese company to target a flotation on the growth market and its valued is expected to be about £40m.