Market Report: Barclays races ahead of the banking pack

The FTSE 100 recorded another session in the red, but Barclays raced, outperforming the banking sector last night.

The stock gained ground after analysts at Keefe, Bruyette & Woods weighed in, saying that Barclays offered the most balanced investment case of the UK-focused banks. Not only do revenues from Barclays Capital, the group's investment banking arm, continue to impress, but as credit write-downs subside investors are likely to see "a more meaningful effect at the bottom line".

This should cover the rising credit costs and margin pressure that is expected in the retail and commercial banking arm, they argued, switching their stance to "outperform" from "market perform". "The upside would come in the form of a continuation of the buoyant investment banking environment, combined with market share gains as [Barclays Capital] builds out the franchise," KBW explained. Moreover, capital was "no longer a debating point", the broker added, as the 8.8 per cent pro-forma capital ratio – 9.3 per cent including warrants – appeared strong enough to accommodate upcoming regulatory changes.

The assessment drove Barclays, which gained 1.6 per cent or 5.9p to 368.9p, ahead of the pack. Lloyds, which is rated "underperform" at KBW, was 3.5 per cent or 3.77p behind at 104.7p, while the Royal Bank of Scotland, also rated "underperform", fell back to 55.55p, –down 1.9 per cent or 1.05p. The former was also the focus of speculation regarding its participation the Government's asset protection scheme, with a report indicating that Lloyds may be looking to limit its reliance on the scheme.

Overall, the FTSE 100, which snapped a six-session winning steak by closing lower on Wednesday, gave way again, falling by 21.23 points to 4869.35. The mid-cap FTSE 250 index was similarly unsettled, weakening by 81.88 points to 8701.33.

Anthony Grech, market strategist at City spread betting firm IG Index, said the session suggested that punters would have wait a little longer before the Footsie breaks through the 5000-point mark. "Certainly if the GDP numbers are revised upward [today] then the feel-good effect could serve to lift the [index]," he said. "However, the combined effects of month-end profit-taking, an unwillingness to leave positions exposed [until the beginning of next week] and the simple fact that it would, from current levels, require the best part of a 3 per cent rally in the index certainly puts the situation into perspective."

Parts of the mining sector were subdued, with Lonmin falling to 1414p, down almost 4 per cent or 57p, and Vedanta Resources relaxing by 3.4 per cent or 62p to 1768p as the profit-taking trend persisted. Xstrata was also weak, easing by 4.1 per cent or 33.5p. Kazakhmys went the other way, rising by more than 2 per cent or 19.5p to 937p after the group reported encouraging first half numbers.

Elsewhere, the mobile satellite specialist Inmarsat, up 0.5p at 518p, was supported by Goldman Sachs, which added the stock to its widely followed "conviction buy" list. "We believe the market is implying [that] Inmarsat goes ex-growth in 2012 at current levels," the broker said. "We think this, and the company's current 2005-2010 target of 6-8 per cent revenue CAGR [compounded annual growth rate], are too pessimistic."

On the downside, Wood Group, the oil services group which issued half year results in the session before, was 3.6 per cent or 11.2p weaker at 297.2p after UBS abandoned its "buy" stance, saying that while the update was positive, the outlook was soft. "Management's outlook for the full year was cautious, implying cuts to [estimated earnings for 2010], and following a good run in the shares we have cut our rating to neutral," the broker said.

On the second tier, Bovis Homes was weak, declining to 526.5p, down more than 5 per cent or 28.5p, after the Royal Bank of Scotland weighed in, scaling back its recommendation on the stock to "hold" from "buy". The change of heart was down to valuation, for the broker remains well disposed to the housebuilder. The wider housing sector was also unsettled, with Redrow retreating to 239p, down 1.5p; Persimmon falling back to 478.7p, down 2.7 per cent or 13.1p; and Bellway relaxing to 864.5p, down almost 3 per cent or 25.5p.

On the upside, IMI outperformed, rising by 13.3 per cent or 53.5p to 454.9p after posting better than expected half year results. In response, analysts indicated that forecast updates were likely to be on the horizon. "IMI has probably produced the best results of the reporting season – beating consensus on revenues (a rare thing) and on profits (certainly the size of the beat is a rare thing)," UBS said. "Volume stabilisation and additional cost cutting will help profitability into the second half and we would expect at least 15 per cent upgrades to consensus."

Among smaller companies, Holidaybreak was held back, closing flat at 280p, after Goldman Sachs took the stock off its "conviction buy list", citing recent outperformance. The broker said it saw better opportunities in the likes of William Hill, which was 2p ahead at 182.9p, but kept Holidaybreak at "buy".