Market Update - 5 September

The FTSE 100 was lodged in bear market territory, down 67 points at 5295.1, while the FTSE 250 was down 135.3 points at 9014.7 at 11:31am this morning.

Most of the activity was on the downside with banking stocks spooked by the European Central Bank's move to tighten rules governing the type of collateral it will accept in return for short term loans.

As a result, HBOS was down 5.75p at 276.75p and Lloyds TSB lost 5.75p to 280.5p. Barclays was also down, losing 13.75p to 315.5p.

The heavyweight resource sector was also under pressure this morning as leading stocks traded in line with lower commodity prices. Ferrexpo was down more than 9 per cent or 189p at 179p while the Eurasian Natural Resources Corporation lost 67 to 805p. Cazenove, which published a UK strategy briefing this morning, said the decline in sector prices was "somewhat excessive".

"The increasing likelihood of a prolonged period of below-trend growth in economic activity, both in the UK and elsewhere, represents an obstacle that equity markets will probably continue to struggle to easily overcome in the coming months. In this context, the recent rally in consumer cyclical stocks may prove to be difficult to sustain, as earnings estimates come under increasing downward pressure. At the same time, the extent of the recent decline in share prices in the resources sector is beginning to look somewhat excessive," the broker said, adding:

"Reflecting these considerations, we expect the resources sector to strengthen in the period immediately ahead and have increased the weighting of mining in our FTSE 100 model portfolio whilst maintaining an overweight exposure to the oil sector."

Moving up...

RSA Insurance - among the most traded issues on the benchmark index this morning - bucked the market trend following renewed talk of a bid from Zurich Financial Services, the Swiss insurance group which last week was rumoured to have appointed advisors ahead of a possible 180p-200p per share offer. Italy's Generali was also named as a possible bidder this morning, sending RSA up by 3.16 per cent or 5p to 163.3p.

Moving down...

Property group Minerva was down 14.5p at 98p following rumours that Limitless may withdraw its takeover offer.

Informa traded lower, down 26.5p at 388p, following its rejection a 450p per share offer from a Providence Equity Partners-led consortium.

Reacting to the news, Panmure Gordon said that the rebuff was no surprise.

"We consider 500p an entry level for Informa," the broker said, adding:

"If the offer is abandoned altogether, we see Informa shares down to 350p in the near term? However, the shares should not react too negatively on the rejection of this initial offer."

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