Market Report: Barclays banks gains before listing of new shares

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Barclays was the focus of heavy buying yesterday as investors moved to pick up stock ahead of the listing of the new shares resulting from the recent placing and open offer on Monday.

The stock was the most traded on the FTSE 100 and closed up 8.5p at 356.5p. Less than a fifth of existing shareholders participated in the bank's £4.5bn capital raising issue, which closed last week. Since the FTSE 100 is a market-capitalisation weighted index, when the new shares are listed Barclays' weighting will change accordingly.

Last night, traders said some index trackers who sat out the issue were buying to adjust to the upcoming change. They added that Barclays' weighting on the benchmark index is expected to increase by approximately 42.7 basis points.

"Index trackers are probably moving to make sure that they don't go underweight on Monday. In other words, they would be making sure that their positions are not hit when the Barclays share capital is diluted," said one trader.

Most of the rest of the sector was weak with HBOS the only other riser. The stock gained 8.75p to 310.25p as analysts and traders played down reports that JP Morgan, the American investment bank, was in talks to form a consortium to break up the mortgage lender.

Bradford & Bingley was down 3p at 56.5p as Marshall Wace, the London-based hedge fund, declared a 0.3 per cent short position in the mid-cap bank.

The FTSE 100 closed down 9.7 points at 5,352.6 while the FTSE 250 lost 139.5 to 8,867.7.

The senior index recovered from earlier lows thanks to early strength on Wall Street, where investors were cheered by surprisingly strong data on new orders for durable goods. Better-than-feared data on US new home sales and an unexpected increase in US consumer confidence also lifted the mood in London.

The reassuring news proved a boon for UK consumer stocks and by the close J Sainsbury was up 9.25p at 317.25p. The new home sales data helped Wolseley, the construction materials company, which was up 5.75p at 334.25p.

BG claimed second place on the FTSE 100 leader board, up 40p at 1,108p despite weaker oil prices. The stock was helped by JP Morgan, which reiterated its "overweight" rating, and Credit Suisse, which raised its target price to 1,600p from 1,560p.

Others in the sector also advanced as investors moved to pick up bargains following recent weakness, and Cairn Energy, the India-focused oil explorer and producer, gained 38p to 2,655p.

Johnson Matthey advanced 22p to 1,705p after Morgan Stanley moved the stock to "equal-weight" from "underweight". The broker also raised its target price for the stock to 1,720p from 1,670p, citing recent underperformance. "JM's share price has fallen 20 per cent in absolute terms, underperforming the European chemicals sector by 12 per cent," the broker said. "Our bull case (2,195p) implies upside of 30 per cent, reflecting longer-term upside risk from diesel vehicle adoption within the US market."

On the downside, the insurance sector was hit by a profits warning from Munich Re, one of the world's largest reinsurance groups. The read-across hit Legal & General the hardest and it claimed second place on the loser board, off 7.1p at 98.6p. RSA Insurance was down 6.5p at 128.8p and Aviva lost 21.5p to 490p.

Among the mid-caps, Rentokil Initial was the worst off by a mile, down 30.75p at 70.75p after issuing a profits warning, its fourth since December. Reacting to the news, Panmure Gordon quipped: "Rento Seriously Ill," It added, referring to the ex-ICI team installed in March to revive the fortunes of the company: When a good management meets a bad business, it is the reputation of the business which remains intact ... We believe the current management has over a decade of mismanagement to address."

Also on the downside, Bellway was 33.5p lower at 506p after Panmure Gordon downgraded the stock to "hold" from "buy".

"Bellway shares have bounced 48 per cent from the bottom, as the sector has remained immensely volatile. In our view, whilst the stock remains our favoured housebuilder, it has risen far enough in the short term," said the broker, noting that it believed the share price "will edge off in the coming days".

On AIM, Shanta Gold, the Tanzania-focused gold explorer and producer, lost 52.38 per cent or 2.75p to 2.5p after the company said it is still unable to access its Mgusu project in the country, owing to militancy by "illegal" miners. The company added that the law prescribes that 50 per cent of one of the licences covering the area needs to be relinquished by mid-September, but that, without being able to access the property to conduct the requisite geological evaluation, it was not possible to determine which portion should be relinquished.