Market Report: Barratt demolishes rumours of rights issue

Barratt Developments, the housebuilder besieged by fears of an emergency rights issue last week, led a housing sector recovery yesterday.

The company's shares had suffered after some ugly rumours, suggesting that it was close to breaching its banking covenants, began circulating on Thursday. While some weekend newspaper reports made similar claims, wary investors were placated by the company, which dismissed the speculation and denied it was planning to raise funds via a rights issue.

The support took the company's shares, which lost more than 7 per cent of their value in January, up by 6.98 per cent or 25.75p to 394.75.

The rest of the sector, invariably depressed since the first fears of an economic slowdown were aired in public, also had a good start to the week.

Persimmon, which saw its share price slump by about 3.6 per cent last month, rose 2.35 per cent or 16.50p to 718p, while Taylor Wimpey, which lost almost 12 per cent last month, was up 2.73 per cent or 4.60p to 172.90p. Others, including Bovis Homes, which gained 4.59 per cent or 25.50p to 581p, Berkeley Group Holdings, which gained 4.83 per cent or 49p to 1,063p, and Bellway, which gained 1.25 per cent or 9.50p to 770.50p, were also up yesterday.

Elsewhere, the banking sector, after suffering under the pressure of some bad results from Bradford & Bingley last week, recovered from its depression yesterday.

Stocks were buoyed by reports that Barclays and Lloyds TSB, both of whom are slated to publish full-year results this week, were preparing to unveil higher dividend payments for shareholders.

The sector also got a boost from news that Northern Rock, the embattled high street lender, was finally going to be nationalised – investors and traders were pleased to be rid of the uncertainty surrounding the company, and also hopeful that the next time the Bank of England is faced with a case of a company strained by liquidity problems, it would likely be less reticent when asked for support.

The (relatively) happy mood took Barclays' stock, up 7.60 per cent or 32.50p to 460p, to the top of the FTSE 100 leader board. Lloyds TSB was just behind, claiming the number two spot, as its share price swelled by 7.26 per cent or 28.75p to 424.50p.

Others in the sector, including Bradford & Bingley, which gained 2.41per cent, or 4.25p, to 180.50, HBOS, which gained 5.01 per cent or 30.50p to 639p, and the Royal Bank of Scotland, which gained 2.92 per cent or 10.25p to 361p, were also up.

Alliance & Leicester, pegged by some to make the worst showing of the big banks due to update the market this week, was up too, gaining 3.90 per cent or 20.50p to 545.50p.

Strong banking stocks helped the FTSE 100 index stay buoyant all day and it closed at 5946.60, up 159 points or 2.75 per cent.

The benchmark index was also helped by the miners, who continued to rally on the back of firm commodity prices and sector consolidation hopes. Vedanta Resources was the best of the lot after its Hindustan Zinc subsidiary raised the price of lead. Vedanta's shares gained 5.21 per cent or 108p to 2,180p, claiming fifth place on the leader board, while sector counterpart BHP Billiton climbed to 1,618, up 4.32 per cent or 67p at 10th place on the leader board.

The FTSE 250 also had good start to the week and rose to 10,084, up 1.88 per cent or 186.10 points.

On the FTSE 250, profit taking and a reduction in Credit Suisse's target price for its stock hurt Ladbrokes, the betting and gaming group which was boosted by bid speculation last week. In a note on the sector, while upgrading its recommendation from "under-perform" to "neutral", Credit Suisse cut its target price to 350p, from 380p. The company's shares were down 1.50p to 327.50p.

Also on the FTSE 250, pub group Mitchells & Butlers was at the centre of speculation suggesting that it may be the subject of a bid from Blackstone and CVC Capital Partners, who may attempt to counter an offer by Punch Taverns, a rival pub company. The speculation helped lift M&B's shares by 2.25p to 445p. Shares in Punch Taverns were also up, and gained 5p to 646p.

On AIM, nanotechnology specialist Oxonica had a spectacular start to the week. The company's shares climbed an astonishing 120 per cent or 27p to 49.50p after it said that trials of its Enirox fuel catalyst by its largest customer Stagecoach Group had revealed "significant" fuel savings.

Also on AIM, Cape Lambert Iron Ore continued to rally on the back of positive test results from its Pilbara iron ore project in Western Australia. The company's shares closed up 16.67 per cent or 2.50p at 17.50p, claiming seventh place on the AIM-All Share index.

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