Market Report: US inflation fears provide succour for the bears

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The Independent Online

Bears certainly had their way in the stock market yesterday, particularly among second liners as the FTSE 250slumped 112 points to 7,087.4. Although the FTSE 100 also ended the day in negative territory, the pain suffered by blue chips was more modest as the index lost 26 points to 4,910.4.

Bears certainly had their way in the stock market yesterday, particularly among second liners as the FTSE 250slumped 112 points to 7,087.4. Although the FTSE 100 also ended the day in negative territory, the pain suffered by blue chips was more modest as the index lost 26 points to 4,910.4.

The falls were prompted by the US Federal Reserve's decision to raise interest rates on Wednesday, and its warning that inflationary pressures were growing in the world's largest economy.

This makes further rate rises in the US increasingly likely, which is bad news for the many hedge funds that, in recent years, had taken advantage of America's cheap money policy and borrowed heavily to invest in UK and European stocks. It is no wonder they rushed to exit equities on this side of the Atlantic yesterday, leaving bears rubbing their hands with glee.

Among the stocks worst hit were those which have performed strongest in recent months. They were mostly second liners. Sportingbet, which soared 300 per cent over the past six months, slumped 11.5p to 268p. There was also a stock-specific reason for Sportingbet's drop. It emerged last night that the Senate in the North Dakota had rejected a bill to legalise online poker.

Many in the online gaming industry remain keen that the US authorities legalise the industry in America.

Meanwhile, bear raiders continued to maul NETeller, down 38.5p to 586p. Earlier this month, shares in the group, which operates an e-wallet that funnels money from online gamblers to betting and casino sites, traded at 757.5p.

In fact, the raid on NETeller has been going on for the past week. Last week those attacking the stock argued that the company had got ahead of itself, and that it would soon encounter intense competition as new players enter the industry it presently dominates.

Bears spread the rumour yesterday that NETeller's recent acquisition in the Far East had hit a snag. Investors will have to wait until5 April - when NETeller issues its full-year results - to discover whether this is the case, as yesterday the company refused to comment on the speculation.

But market professionals pointed out that NETeller was a very soft target for bear raiders. The company's shares climbedsteadily from its 200p issue price, and many of the bull positions in the stock are held by punters using contracts for difference.

These financial instruments allow investors to take a very large position in a share with a tiny outlay of hard cash as a deposit. As long as the stock is rising the investor enjoys large profits, but if it starts to tumble losses quickly accumulate and usually cause punters to rush to sell. A downward spiral in the stock usually follows, generating a healthy profit for those raiding the stock.

Kensington, another strong performer over the past six months, slumped 16.5p to 610p on rumours that bid talks at the mortgage lender were faltering. Only last week the group disclosed it was in takeover negotiations, but brokers feared that should they fail the stock will fall sharply. Among those concerned is Altium Securities. It urged its clients to sell Kensington, suggesting that the shares could fall to 500p should the buyer for the company walk away.

In the small-cap oil and gas sector, Goldman Sachs got behind Edinburgh Oil & Gas, up 20.5p to 255p. The heavyweight US broker said it conducted extensive research into the Buzzard field, where Edinburgh has a 5 per cent stake, and concluded it was "one of the most attractive in the world". On the basis of this stake, Goldman argued that Edinburgh shares were worth at least 350p and hinted that the company could soon be a takeover target for a mid-sized oil and gas player or a financial buyer.

Greggs slimmed down 21p to 4,566p after Michael Darrington, the managing director at the sandwich chain, and the finance director, Malcolm Simpson, sold £1.8m worth of shares after exercising options. Minorplanet bucked the negative trend, gaining 0.5p to 4.5p, as the struggling company said its finances would last until June. The group also indicated that it would unveil a fund-raising next month. Word has it the company's broker has lined up a series of institutions willing to participate in the new share issue at 5p.

Finally, in the FTSE 100, Scottish & Newcastle stood out as it registered a 3.25p rise to a 12-month high of 465.25p. Dealers were puzzled by the strong demand for the stock, given the wider carnage among blue chips. They noted that S&N's June call options were also heavily bought. These allow investors to benefit from a sudden jump in the group's shares between now and June.

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