Market Report: Anglo American's spike signals miners' recovery

The mining group Anglo American, up 5.15 per cent, or 113p, at 2,308p, was the strongest on the FTSE 100 yesterday after Cazenove highlighted the prospect of a recovery in sector share prices.

The sector experienced its sharpest one-month fall since 1997. But, the broker said, while share prices have sunk, earnings momentum for most miners has actually improved since the start of the month.

"The decline in metals prices has been more than offset by weakness in producer currencies and, more pertinently for the UK investors, sterling," Cazenove said. "Our view is that as the copper price starts to find a floor, which we believe it is now doing for a number of reasons, the market's focus will return to the sectors attractive cash-flow profile."

Beside Anglo American, the assessment aided Xstrata, which gained 50p to 2,275p, BHP Billiton, which climbed to 1,405p, up 20p, and Antofagasta, up 5.75p at 493.75p.

Lonmin, the platinum miner, missed out on the rally, however, following yet more speculation that Xstrata may walk away or lower its 3,300p per share offer for the company. Lonmin lost 4.47 per cent, or 137p, to 2,929p.

Overall, the FTSE 100 was down 47.8 points at 5,318.4 while the FTSE 250 slipped to 8,874.9, down 92.3 points. The London benchmark was dragged into the red by weakness in the banking and retail sectors.

The latter slipped amid mounting concern about the impact of the slowdown in consumer spending after a gloomy update from the owner of Argos, Home Retail Group, which was down 5.69 per cent, or 13.75p, at 228p. Morrisons, which published an in-line update, was also sold, down 6.11 per cent, or 16.5p, at 253.75p, as the market focused on the outlook for the sector. As a result, J Sainsbury lost 5.93 per cent, 21.75p, to 345.25p and Marks & Spencer eased back to 240p, down 3.13 per cent or 7.75p.

Commenting on the day's movements, David Jones, the chief market strategist at IG Index, said the next few sessions "could well set the tone for stock markets for the rest of the year". He said: "The test for all markets over the days to come is whether the lows set in July will prove to be tempting enough again for the buyers to step in and stop any further declines."

Elsewhere, another slide in Lehman Brothers' share price bore on the UK banking sector. The investment bank's stock plunged more than 40 per cent in early trade as analysts voiced concerns about the company. Goldman Sachs, for example, downgraded Lehman to neutral from buy, saying that, "at this juncture, there is too much uncertainty around Lehman's future strategic initiatives to recommend the shares". Coincidently, market talk suggested that Goldman may soon announce plans to take over its troubled rival.

The read-across in London took Lloyds TSB down 4.07 per cent, or 12p, to 283p. HBOS was down 4.34 per cent, or 13p, at 286.75p while on the second tier, Bradford & Bingley eased back to 38.25p, down 7.27 per cent or 3p. Barclays, which was rumoured to be eyeing parts of Lehman's asset management business, was down 2.31 per cent, or 8p, at 338.5p.

Also on the downside, AstraZeneca was 2.88 per cent, or 76p, lighter at 2,566p after Goldman advised clients to "sell" the stock, arguing that the recent surge in the share price was not supported by the near-term fundamentals at the pharmaceutical group. "AstraZeneca management faces potentially the biggest challenge among all EU large caps, in our view: it has time on its hands and generates strong cash flow but is likely to see a significant erosion in market value in coming years unless management is seen to begin to actively address this situation," Goldman said.

On the FTSE 250, the van rental group Northgate was the worst off, down 10.21 per cent, or 36.25p, at 318.75p, after joint house broker UBS slashed its earnings-per-share estimate to 60.59p from 87.64p for 2009 and to 67.56p from 88.53p for 2010. "In the last six months used van prices have dropped by around 15 per cent – expect this to wipe out all of last year's profits on van disposals and push them into loss," the broker said.

The video games retailer Game recovered, up 2.27 per cent, or 5p, at 225.25p, after Arbuthnot weighed in on recent speculation regarding the impact of competition from Morrisons. "The stock reaction does not stack up," the broker said, pointing out that, among other things, at around 1 per cent, the supermarket chain had an "insignificant" share of the video games market and game suppliers are likely to favour Game as the dominant customer.

Among smaller companies, the nightclub operator Luminar closed down 18.5p at 220p. The stock was hit by speculation, understood to be wide of the mark, that the company had breached its debt covenants.