Marks & Spencer led the blue-chip retailers lower last night amid concern the company might be left behind during the crucial Christmas selling period.
There was fear that, despite holding two recent one-day sales, M&S may be forced to offer further significant discounts as the festive season progresses, owing to stock left over from September when the Lehman Brothers bankruptcy and the troubles around HBOS precipitated a sharp drop in consumer demand.
Analysts at Morgan Stanley said a "big step-up in markdowns" was likely to affect margins, making its assumption of flat gross margins in general merchandise "unachievable". "M&S disappointed the market with its January trading statement. We fear that it is set to do so again this year..." the broker said, sparking concern about trading which sent the stock down 5.03 per cent, or 12.25p, to 231.25p.
DSG International, up 3.25p at 16p, and Kesa Electricals, down 6.75p at 98.25p, were also said to be at risk this Christmas. "Positive surprises could come from HMV as, despite structural problems, its competitive position has been strengthened by the collapse of Woolworths and supply problems at Zaavi, and Sainsbury's, which we believe will benefit from consumers trading down from M&S and Waitrose," Morgan Stanley added, helping HMV climb to 111p, up 4.72 per cent, or 5p. Sainsbury's was up 2.45 per cent, or 7.25p, at 303.25p.
Overall, the FTSE 100 was down 13.98 points at 4,367.28, while the FTSE 250 gained 112.74 points to 6,264.37.
Sentiment was mixed, with strength in mining and the oil and gas sectors offsetting weakness in financial and retail stocks. Rio Tinto surged after unveiling plans to cut debt by $10bn (£6.7bn) by the end of 2009. Rio's plans answered market concerns about its debt pile, and the stock ended at first place on the Footsie, up 20.35 per cent, or 256p, at 1514p. The wider sector perked up as commodities rose with Vedanta Resources, at second place on the benchmark index, gaining 14.68 per cent, or 90.5p, to 707p, and Antofagasta, at fifth place, advancing to 456p, up 8.12per cent, or 34.25p.
Banks, including Standard Chartered, at 750p, down 6.02 per cent, or 48p, and the Royal Bank of Scotland at 68.5p, down 2.28 per cent, or 1.6p, were unsettled after Credit Suisse highlighted the possibility of a "broad, complete removal of profits in 2009 and 2010" across the European sector if economic conditions deteriorate sharply.
The First Capital Connect operator FirstGroup lost 2.52 per cent, or 10.25p, to 397p after Goldman Sachs added the stock to its widely followed "conviction sell" list, saying: "Next financial year we expect School Bus (where higher fuel and labour costs will offset the benefit of synergies), Greyhound, UK Rail and UK Bus profits will be well below consensus expectations owing to higher costs and weaker volume."
Back on the upside, Wood Group, up 8.81 per cent, or 14.8p, at 182.8p; Stagecoach, up 5.22 per cent, or 6.7p, at 135.1p; Lonmin, up 6.19 per cent, or 38.5p, at 660p; Fresnillo, up 1.51 per cent, or 2.1p, at 141.1p; Petrofac, up 7.23 per cent, or 21.5p, at 318.75p, mounted a show of strength before the FTSE index review, the results of which, released last night, were based on prices at the close on Tuesday and confirmed the relegation of all five to the FTSE 250.
Elsewhere, on the FTSE 250, Johnston Press, up 2p at 12p; Trinity Mirror, up 1p at 54p last night, and Mecom, up a slight 0.05p at 1.5p, were given their marching orders from the mid-cap index. Other leavers include Taylor Wimpey, up 0.09p at 10p, and Premier Foods, up 6p at 23.75p.
Randgold Resources, up 6.97 per cent, or 177p, at 2717p, is among those moving up to the FTSE 100.
In other movements, Game Group, the video games retailer, retreated to 123.5p, down 6.79 per cent, or 9p, after a disappointing update from Electronic Arts, the video games maker.
Imperial Energy, up 6.79 per cent, or 68p, at 1,070p, continued to trade below ONGC Videsh's 1,250p bid price despite some supportive comment from JP Morgan, which said that, contrary to recent market concerns, Imperial shareholders were likely to accept the offer by the end of the tender period later this month, arguing: "The highly concentrated institutional shareholders structure will help to reach the 90 per cent app-roval limit in time."
Among smaller companies, Mano River Resources surged after ann-ouncing the completion of a deal with Severstal, the Russian mining group, to develop its Putu Iron Ore project in Liberia.
The move marks Severstal's first foray into Africa and sent Mano's shares rocketing to 2.375p, up 26.67 per cent, or 0.5p.