Market Report: Utility players in demand as going gets tough

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There was a rush of support for blue-chip utility stocks as investors sought out safe havens. Four of the top five gainers in the FTSE 100 were utilities as traders moved into stocks that usually perform strongly in adverse market conditions.

Kelda Group, the water and waste services group, topped the leaderboard, adding 34p to 844p, while the water rival Severn Trent closed 27p firmer at 1,221p. With global markets continuing to trade lower on the Middle East situation, traders said utility stocks were likely to continue to attract support. United Utilities, 10.5p better at 637p, and Scottish & Southern Energy, up 18p at 1,166p, completed a good day for the sector.

One trader said: "This is as tough a market as we have seen for a while and it is no wonder there is a flight to quality going on. Institutional investors can't desert the market but are shifting more of their exposure into companies with highly visible and reliable earnings."

AB Foods has been the best performing stock in the FTSE 100 over the past month. The shares have risen from a low of 699p on 13 June to close at 823p yesterday, 6p better and a rise of almost 18 per cent against a falling market. A return to positive newsflow, the group's defensive qualities, cost-cutting and a biofuels joint venture with BP and DuPont have led analysts to upgrade forecasts.

In the wider market, the FTSE 100 closed lower again, making it more than a week since the market closed higher. A surprise UK inflation rate of 2.5 per cent also dampened sentiment as traders speculated that the end to rising interest rates might have been called too early. London shares closed 19.3 worse at 5,681.7.

Despite higher-than-expected home broadband start-up costs confirmed by BSkyB yesterday, Carphone Warehouse continued to attract sellers. Even if BSkyB does spend more than the £400m it is now pencilling in, traders expect it to emerge as a dominant force in the industry at the expense of Carphone's offering. Shares in Carphone fell to 263.5p, 12p worse, 26.6 per cent below the 360p the shares hit soon after announcing its move into broadband. BSkyB shares shed 23.5p to close at 517.5p. But the biggest casualty of the broadband price war looks like being Plusnet, the small-cap operator, as the shares slipped another 12.5p to 132p. The stock has now fallen almost 70 per cent since mid-April.

The rumour doing the rounds in the market is that the plant hire group Ashtead has its US rival NationsRent in its sights. The company announced a rights issue to raise up to £150m on Monday to help finance the deal, thought to value NationsRent - which operates in 267 locations from its head office in Fort Lauderdale, Florida - at $1bn (£550m). Although there has been a positive response to the acquisition news among investors, shares in Ashtead were again weaker, down 1.75p to 147.25p.

In the small caps, Secure Design continued its excellent start to life as a quoted company, adding another 17p to close at 101.5p. The first Japanese group to list on AIM started trading on Friday at just 47p per share, and brokers are enthusiastic about its potential in the rapidly growing fingerprint and identification market, which the company expects to grow to more than $6bn per year by 2010.

The fallout from the arrest of David Carruthers, the chief executive of BetonSports, looks likely to continue as investors deserted the online gambling sector en masse. Related companies, such as NETeller, an online money transfer group for the gambling industry, and the software designer Playtech were also hammered. NETeller fell 66p to 369p and Playtech was off 84p at 214.5p. Trading in BetonSports was suspended at the request of the company with the shares at 122.5p.

Elitel Telecommunications, an AIM-listed Italian telecoms group, took a pasting despite what most observers took to be a positive announcement. The group has signed an option to buy the data centre branch of Blixer Net Services for €200,000 (£140,000) per year until 2011. But market makers blamed panicking retail sellers as the share price collapsed, closing the session 18.5p worse at 68.5p, a fall of 21.3 per cent.

The word in the market is that the computer products distributor Fayrewood is struggling to improve margins and a second profits warning for the year might on the way. The shares fell 3.75p to 74.75p as traders also expressed concerns about the viability of ongoing projects at the company.

Finally, the children's toy developer Character Group was strong after the private equity group 3i bought the Italian investment group Giochi Preziosi's holding, 11.5 million shares, a little more than 24 per cent of the equity. Rivals Chorion and HIT Entertainment have both been bought by private equity groups in the past 12 months, although for the time being traders do not expect a full bid. Shares in Character Group closed 4.5p better at 67p.

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