Market Report: Cairn gains on bullish forecasts for oil prices

A positive report from UBS took Cairn Energy to the top end of the FTSE 100 yesterday. The broker made significant upgrades to its oil price forecast, estimating $155 (£80) per barrel in 2012 "due to surprisingly resilient demand and weak supply growth", which in turn prompted a revision of its views on European exploration and production companies.

Cairn came out on top, winning a "buy" recommendation with a 4,500p target price, which UBS said reflected the company's "superior exposure" to the rising oil price. The broker added that the "generous" cost recovery terms at its operations in Rajasthan, India, provided the company with a "shelter" from inflating costs.

Cairn gained 144p to 3,532p, claiming third place on the leaderboard.

UBS also set a "buy" rating on FTSE 250-listed Dana Petroleum, which rose by 9p to 1,887p.

Elsewhere, BHP Billiton rose by 56p to 2,174p after traders noted a report in The Australian newspaper, which suggested that in keeping with earlier rumours, Chinese investors were indeed seeking to acquire a stake in the dual London-and-Sydney-listed miner. The report suggested that the Chinese may pick up the stock in partnership with a local fund – a move that would make it harder for the Australian government to block the stake building on grounds of national interest.

BHP's takeover target Rio Tinto also rose, gaining 142p to 7,023p.

Overall, the FTSE 100 was up 4.1 points at 6,216 after positive updates from the likes of BT, which rose by 12p to 235.25p, SABMiller, which added 47p to 1,250p, and Cadbury, which rose by 25p to 672p, offset losses among banks and the effect of a weak start on Wall Street.

The FTSE 250 gained 63.6 points to 10,338.9.

On the FTSE 100, Royal Bank of Scotland ended at 276p, up 2p, after its shares began trading ex-rights following the bank's cash call last month.

The rest of the sector also remained weak. Barclays posted a £1bn write-down, but, contrary to earlier market speculation, refrained from launching a rights issue for the time being. Collins Stewart, whose analysts maintain a "sell" rating on the stock, said that while the bank "deserves credit for not being forced" into a cash call "capital tension will remain a drag on the stock price (as it was for RBS)". By the market close, Barclays was down 8.5p at 418.75p.

Alliance & Leicester was down 6p at 439.75p and HBOS lost 5p to 465.25p. FTSE 250-listed peer Bradford & Bingley, which announced a surprise cash call on Wednesday, was down 9p at 135p.

British Land was strong, gaining 14.5p to 798.5p, after Goldman Sachs revised its rating on the stock to "buy" from "neutral". "We believe that British Land's current valuation should allow its shares to benefit from an absence of significant negatives, leading to a reversal of at least some of the 16 per cent underperformance relative to our coverage universe over the last three months," the broker said.

On the FTSE 250, WH Smith was weak, losing 15.25p to 402.25p, after Citigroup revised its rating on the stock to "hold" from "buy". The broker said that its bull case for the stock was "more than priced-in", citing the recent strong share price performance and a lack of near-term trading catalysts.

"Our view is supported b y recent significant share sales by directors," Citi said, pointing to chief executive, Kate Swann, who reduced her holding by 45 per cent on Wednesday, and the finance director, Alan Stewart, who reduced his holding by 58 per cent last month.

EasyJet remained firm, gaining 0.75p to 280.5p, even as ABN Amro, while casting the company as a "long-term winner", lowered its pre-tax profits forecast for 2008 and 2009 by 7 per cent and 8 per cent respectively.

Renewed bid rumours were evident around Genus, the animal genetics specialist. Earlier speculation had suggested that Monsanto, the American agricultural biotechnology giant, was eyeing the company; after subsiding for a while, the rumours resurfaced last night, taking the stock up by 18p to 872p.

On AIM, Regal Petroleum was up, adding 12.25p to 234p, after publishing an update on its Ukrainian operations. Goldman Sachs provided an extra boost – the broker initiated coverage on the stock, setting a "buy" rating with a 281 target price. "Regal offers exposure to the potential upside from the development of key gas fields in Ukraine," Goldman said.

Also on AIM, Share, the company behind the Share Centre independent stockbrokers, made its market debut. Share raised £1.08m before expenses through a public offer for subscription at the offer price of 27p per share, valuing the company at about £43.2m on admission. By close, the stock was up 5p at 32p.