Market Report: Defence cut fears force BAE Systems to retreat

With defence cuts in the UK back in focus BAE Systems was stuck at the foot of the blue-chip index last night as it dropped 14.7p to 326.8p.

The defence giant suffered the fall after the Commons Public Accounts Committee said the Ministry of Defence must stop overspending on contracts and reveal within months how it will implement the cost savings that have been previously demanded.

Meanwhile Liam Fox, the Defence Secretary, said that any "future programmes should not be included unless there is a clear budgetary line for development, procurement and deployment".

With the MoD having its funding reduced by 8 per cent over the next four years BAE said last week that its sales would drop in 2011 due to budget cuts here and in the US.

Atif Latif, director of trading at Guardian Stockbrokers, said "BAE are most heavily exposed to the defence areas that are under the greatest pressure for cutbacks". However others in the sector, did not escape falls, with Rolls-Royce and Cobham down 9.5p to 614.5p and 4p to 219.5p respectively.

During the morning Libya once again dominated as the FTSE 100 touched a low of 5.926.92 points. Yet the US, which was buoyed by impressive consumer confidence data, managed to spark a rally of sorts and the top tier index closed at 5,996.76, an overall drop of 18.04.

The wider unrest in the region knocked Thomas Cook as the travel company slipped back 3.6p to 194.4p. Panmure Gordon downgraded the group to "hold" saying that both "the geopolitical and economic backdrop will remain unfavourable and negatively impact sentiment towards the tour operators".

With Tui Travel – 2.5p lower at 243.3p – down as well, Nomura's analysts said Morocco being one of the countries to which the protests have spread is a "particular concern given its increasing prominence as a winter sun destination".

They also warned over the increased cost of fuel which was not helping International Consolidated Airlines at the start of the session. However it managed a significant recovery as oil prices fell away, finishing just 1.3p behind at 238.2p.

Many of the miners were among the risers, with African Barrick Gold 8.5p ahead at 575.5p and Rio Tinto edging up 29p to 4,340.5p. Meanwhile BHP Billiton was 38.5p higher at 2,413p after it said it is spending £2.95bn on a number of shale-gas reserves in Arkansas.

On the FTSE 250 Forth Ports put on 49p to 1,493p as chit-chat spread that it could be the subject of another takeover attempt. Last year the UK's only listed ports group fought off an approach and yesterday market gossips were getting excited over vague rumours that it could be about to receive an offer worth as much as 2,050p a pop, although details were scarce on the identity of the supposed bidder.

In a tough session for the retailers, Home Retail was driven back 2.4p to 227.6p after Nomura reduced its forecasts for the group. The broker cut its like-for-like expectations for both its Homebase and Argos businesses, with its analysts saying they expected "short-term weakness in the stock given ongoing macro weakness".

They had words of warning for its peers as well, predicting "further downside risk as retail sales weaken". The sector certainly looked less steady yesterday, with Kesa Electricals easing back 3.5p to 129.6p while Kingfisher fell 0.7p to 258.6p and Debenhams slid down 0.45p to 61.9p.

One of those bucking the trend, however, was Next which climbed 21p to 2,003p thanks to UBS upgrading its advice on the chain to "buy" and pointing out its share price "has been hitting new relative lows all year".

However the return of vague speculation that Topshop's Sir Philip Green could try to buy Marks & Spencer again did not prevent it retreating 4.4p to 350.5p.

Top spot on the second line was taken by Croda International as the chemicals group jumped 145p to 1,639p following its latest figures and bullish comments over its ability to benefit from emerging markets.

Just behind it was Lamprell which pushed forward 25p to 305p thanks to a contract win analysts said could be worth as much as $210m. The group, which upgrades and refurbishes oil and gas rigs, will put together a mobile offshore drilling platform for the Singaporean company Greatship Global Energy Services.

Following a huge surge on Monday after it agreed to Kyowa Hakko Kirin's £292m, or 130p a share, takeover, the small-cap biotech group ProStrakan made a smaller shift up of 1.5p to 133p yesterday as Singer Capital Markets said it could receive counter bids.

Meanwhile, Bglobal added 2.25p to 37.5p on the Alternative Investment Market following an agreement with Opus Energy to supply and fit smart meters for its customers.

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