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Market Report: Shares rocked by worries over US economy

Worries about a sharper than anticipated slowdown in the US economy hit stocks on both side of the Atlantic yesterday. The FTSE 100 dropped 1.3 per cent, or 74 points, to 5,822, as investors were unnerved by yet more evidence that the world's largest economy may be foundering.

KB Home, one of America's biggest housebuilders, warned that conditions in the country's all important housing market remain tough. This came hot on the heels of Thursday's news that the Federal Reserve Bank of Philadelphia had seen business conditions fall in September to their weakest level since April 2003, sparking fears that the US economy is losing momentum faster than most economist thought.

In London, only two blue-chip stocks finished the session in positive territory and both were buoyed by bid rumours. Brambles Industries, 11.5p better to 468.5p, was said to be about to get a 600p-a-share takeover offer, while Hanson, 4.5p stronger to 680.5p, was talked of as vulnerable to an 800p bid from Mexico's Cemex.

The mining sector registered some of the worst losses. BHP Billiton dropped 29p to 887p, Anglo American lost 61p to 2,134p, Xstrata retreated 59p to 2,113p and Rio Tinto gave up 61p to 2,407p

ITV fell 2p to 97p amid growing fears about the outlook for the advertising market. There are predictions that its revenues could be down by as much as 18 per cent in the third quarter of this year and may deteriorate even further in the fourth quarter. That would be disastrous for ITV and mean the much-hyped revamp of its programming schedule has failed.

In recent days, dealers have reported a growing bear position in the stock. A number of New York-based hedge funds are said to be short of ITV shares in the belief that when a successor to chief executive Charles Allen is named it will disappoint the City. At present, Mike Clasper, the former chief executive of BAA, is tipped as the favourite to take the helm of the group followed by Stephen Carter, the retiring boss of telecoms regulator Ofcom.

Although ITV shares trade within a whisker of their all-time low, City sources said it is unlikely that a private equity bid will emerge for the group unless the stock falls a lot further.

Kesa Electricals rose a further 3.75p to 331p amid continued rumours of a bid for Metro, the German retailer. However, Commerzbank poured cold water on the speculation. The broker said: "We would consider it a big setback for the consumer electronics division of Metro if they were to bid for Kesa. The profile of the various banners of Kesa is so different that in our view it would be difficult to justify such a deal." Commerzbank argued that the only UK consumer electronics chain that might fit Metro's portfolio is PC World, which is owned by DSG International. "We cannot find any merits [for Metro] in a Kesa acquisition at all," concluded the broker.

St Ives dropped 2.75p to 219.25p amid cautious comments from Numis Securities about the prospects of the magazine printer being taken over. On Thursday, St Ives shares jumped nearly 6 per cent as management buyout rumours circled dealing rooms. However, Numis believes that the risk faced by anyone buying the company outweighs the rewards. It points out that this year's results will see the group post its lowest earnings for a number of years. Meanwhile, its borrowings look set to rise as it jacks up capital expenditure. For the year to 29 July 2006, Numis forecasts a pre-tax profit of around £21m from St Ives, down from £38m in 2005.

At the small cap end of the market, Thus shed 5.25p to 132p as negative sentiment gained momentum on the back of an Investec note published earlier this week. The broker reiterated its "reduce" rating on the stock, with a 115p price target, and said it was concerned about the company's underlying earnings forecast for this year and the stock's premium rating to sector peers such as Colt and Kingston Communications. Investec was replaced as broker to the company two months ago.

At Monterrico Metals, off 1.5p to 181.5p, Frederick Haller, a non-executive, bought 10,000 shares at 167p, taking his total holding to 1.06 million or 4 per cent.

Richard Ralph, Monterrico's executive chairman, was reported as saying that the group is in talks with 19 parties interested in participating in its Rio Blanco copper project. The miner hopes to bring in one of them to help develop the Peruvian prospect.