Market Report: Tobacco stocks fail to avoid the FTSE 100 rout

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The Independent Online

On another bad day for London equities, it would not have been a surprise to see some support for tobacco stocks, usually among the safest ports during a storm. However, talk that Imperial Tobacco is poised to launch a bid for the Franco-Spanish tobacco group Altadis put pressure on Imperial as traders feared it may be about to launch an expensive takeover battle in a period of extreme weakness for global markets.

Although shares in Imperial Tobacco outperformed the wider market, they fell 16p to 1,620p. The talk about a bid for Altadis, the maker of brands such as Gauloise and Fortuna, has done the rounds before. Shares in Altadis closed fractionally lower in Madrid at €36.56 (£25.01), giving the company a market capitalisation of £6.7bn, significantly lower than the £11.3bn valuation from Imperial.

Gallaher and British American Tobacco, London's other major tobacco stocks, also fell, with Gallaher 6p worse at 805p and BAT 11p weaker at 1,343p, although some traders believe consolidation of the European industry could involve a number of large deals.

Some investors believe the boom in online gambling is coming to an end, and pointed to the unenthusiastic reception for the PartyGaming placing last week as evidence that the market has lost much of its appetite for the sector. PartyGaming dropped another 4.75p to 108.25p, a six-month low, while the smaller rival 888 Holdings shed 8p to close at 183p, and the AIM-listed Fireone dropped 6.5p to close at 277.5p.

The building supplier Wolseley was among the few winners in the main index, as the European broker Deutsche Bank published an upbeat assessment of its prospects. The shares have fallen dramatically over the past month on the company's exposure to the US dollar and fears over rising US interest rates. In a note to clients, the broker said it remains "totally convinced by Wolseley's long-term prospects" and it is a matter of when rather than if the shares rebound. Even so, the bank also lowered its target price on the shares from 1,771p to 1,530p. Traders were desperate to cling on to any good news in an awful trading session, sending the shares 11p better to 1,129p.

The FTSE 100 was well into the red all day, and a half-hearted rally when Wall Street opened fooled nobody. The Dow quickly moved into losses and London shares closed 101.3 worse at 5,519.6, the lowest close of the year so far.

Will Armitage, of the spread-betting group IG Index, said traders expect the FTSE 100 to generate strong support at the 5,370 level. "Take a step back and you will remember that the market was congratulating itself for reaching these levels at Christmas - is it really that bad to be back at around 5,500?" he said.

The FTSE 250 has performed even worse than the blue-chip index over the past four weeks, and second-line stocks were again out of favour with investors until late bargain-hunting gave the index a bit more respectability. Higher-risk stocks and mining issues were worst affected by the sell-off, with Colt Telecom 6.5p lower at 58.5p, Aquarius Platinum 67p weaker at 602p and Vedanta Resources, soon to join the FTSE 100, 81p worse at 1,105p. So much for getting a boost from promotion - Vedanta has lost 14 per cent in the interim.

Market makers blamed poorly executed Sets trades for a 31p fall in early trading in the insolvency specialists Begbies Traynor Group. It was the first day for the group of dealing on Sets, the London Stock Exchange's electronic dealing platform, and market makers said the stock would not have been driven so low if it had still been on the competing market maker system. Even so, the shares closed the session 21.5p worse at 145.5p.

Brinkley Mining, the uranium mining group that listed last weekat 50p, again came under selling pressure as the shares dropped to less than half the issue price. Market makers again blamed a mystery broker representing Australian clients for the 7.5p drop to 23p, after a national holiday in Australia on Monday this week as 2.1 million shares changed hands. Investors who bought into the placing at 50p have now seen 54 per cent of their initial investment wiped out in just seven trading days.

Afren, an oil exploration and production group with assets in west Africa, caught market watchers' attention late on as more than seven times the average daily volume changed hands. Although the shares fell 4.25p to 44p, large orders went through, including two of 1.5 million shares. Traders said the shares have taken a hammering recently and there was some speculation that either a bid or a major announcement could be on its way. Given that the shares were not called higher, despite the volume of 6.9 million shares, some traders said the newsflow could get worse before it gets better.

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