Market Report: Barratt rises as bargain hunters sniff gains

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The view that the market may already be pricing in the worst boosted the housing sector last night, with the likes of Barratt Developments and Berkeley ending the week on a firm footing.

Barratt was 1.9p higher at 99.1p, while Berkeley rose by 2p to 761p as bargain-hunters rushed into housing-related stocks, a number of which have been trading lower as worries about the sustainability of the housing market recovery mounted in recent weeks. Last night's gains followed a string of analyst circulars urging investors to make the most of the pullback. Liberum Capital was the latest to weigh in, telling clients to pick up stocks such Barratt and Redrow as they should do better once the Government's emergency Budget is out of the way.

"The budget ... is almost certain to include an increase in capital gains tax, from 18 per cent back to 40 per cent, or even 50 per cent," Liberum said. "This is potentially serious as it could lead to sales of second homes, but we believe that the Government will restore enough taper relief [measures] to protect the housing market." As for the looming fiscal squeeze, its potential impact on the wider economy, and thus its impact on the housing market, the broker explained that while "public sector cuts are a concern", rising private sector employment should offset any negative hit as long as the cutbacks are weighted more towards 2011, rather than 2010.

Overall, strong gains in BP's shares underpinned the FTSE 100, which, overcoming some early weakness on Wall Street, ended 31.18 points higher at 5,163.68. The FTSE 250 was also firm, adding 52.91 points to 9,662.59. despite some uninspiring data on UK manufacturing output and, later, news of an unexpected fall in US retail sales. BP was the standout riser of the day, rallying by more than 7 per cent or 26.4p to 391.9p amid heavy volumes.

Buyers, thin on the ground as the White House turned up the heat in recent sessions, were said to have been lured back by hopes of support from the coalition Government. Backing from UK authorities, it was hoped, might go some way in mitigating US moves against the oil giant, which is still battling to stem the Gulf of Mexico leak. In some negative news, overnight figures from US scientists suggested that the spill was larger than previously thought. The market was also unperturbed by a report suggesting that the company was preparing to defer its next dividend.

Elsewhere, parts of the mining sector were pressured by profit-taking, with Antofagasta, the Chilean copper producer, easing by 15.5p to 856.5p as metals prices relaxed in response to disappointing news on US retail sales. The Mexican silver miner Fresnillo was also lower, shedding 4p to 1,009p despite the recent renewal of bid rumours. For some time now, a larger, diversified – but as yet unnamed – mining group has been rumoured to be keen on expanding in the silver trade, with Fresnillo cast as a possible target. The Mexican billionaire Carlos Slim has also been rumoured to be eyeing the group.

On the upside, International Power was 5p ahead at 305.4p against the backdrop of renewed talk of deal interest from France's GDF Suez. The chatter follows abortive talks over an asset tie-up earlier this year. Further afield, Reed Elsevier rose by 11.1p to 494.6p following a push from Morgan Stanley, whose analysts turned buyers of the publishing and exhibitions group.

The broker said that while the company did indeed face challenges this year, improvements in underlying market conditions pointed to a "strong bounce-back" over 2011-12. Next month's interim results are likely to mark the bottom in terms of earnings, and if the company sidesteps earnings downgrades, investors could be greeted by strength in the shares, the broker added, raising its target to 600p.

Brit Insurance dominated the second tier with a near 21 per cent, or 151p, rise to 880p. In a statement published after the close on Thursday, the Lloyd's of London insurer revealed that it had rejected an offer approach. Yesterday, it confirmed that the proposal, which was worth 1000p per share in cash, came from Apollo Global Management. Beyond Brit, the news lifted the mood across the sector, with investors moving in on hopes of further deal activity. Amlin, for instance, was 9.3p ahead at 378.9p, while Beazley added 6p to 120.2p.

Drax, the owner and operator of the Drax coal-fired power station, was 12.3p up at 367.9p following support from Evolution. The broker moved the stock to "add", pointing to the fact that electricity prices had been improving alongside forward gas prices, driving Drax's dark green spreads – or gross margins, which are calculated by deducting the cost of coal and carbon from the price of electricity.

UBS aided Dana Petroleum, the oil explorer which gained 44p to 1,088p after the broker upped the stock to "buy". "With a high impact exploration well due to spud in the next few weeks, [the] sanction of two significant UK projects, and a weaker sterling offsetting somewhat weaker oil prices, we believe there is a strong valuation case," UBS said, pointing out that Dana was trading at a significant discount to risked net asset values.

FTSE 100 Risers

*GlaxoSmithKline 1,197p (up 33.5p, 2.9 per cent)

Rises after Barclays Capital switches stance to "overweight" from "equal-weight".

*AstraZeneca 3,056p (up 67p, 2.2 per cent)

Rises after Barclays Capital switches stance to "overweight" from "equal-weight".

*Burberry 786p (up 2p, 0.3 per cent)

HSBC reiterates its "overweight" recommendation, raises target price to 900p from 850p.

FTSE 100 Fallers

*Prudential 535p (down 14.5p, 2.6 per cent)

Morgan Stanley resumes coverage with an "equal-weight" stance, 718p target price.

*Rexam 315.2p (down 2.1p, 0.7 per cent)

Goldman Sachs revises its recommendation to "neutral" from "buy".

*Randgold Resources 6,075p (down 25p, 0.4 per cent)

Retreats amid profit-taking; target price raised to 6,200p from 4,700p at Numis.

FTSE 250 Risers

*Catlin 346.9p (up 20.5p, 6.3 per cent)

Sector lifted by news of Brit Insurance's rejection of an approach from buyout firm Apollo.

*Punch Taverns 64.85p (up 2.95p, 4.8 per cent)

Announces sale of a further four managed pubs to Greene King in £5.3m deal.

*Persimmon 366.6p (up 5.5p, 1.5 per cent)

Housebuilders rise on bargain-hunting following recent share price falls.

FTSE 250 Fallers

*Ashtead 108.9p (down 3.8p, 3.7 per cent)

Falls back ahead of its full-year results, which are due to be issued next week.

*Premier Farnell 237.9p (down 6.1p, 2.5 per cent)

Falls back amid profit taking following Thursday's results-inspired gains.

*Imagination Technologies 265.2p (down 6.8p, 2.5 per cent)

Hit by profit-taking following Thursday's speculative rally.

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