Market Report: Double dip worries weigh on blue chips

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The Independent Online

Despite a positive start to the day, the FTSE 100 hit a wall as the dreaded prospect of a "double dip" recession once more steamed into view, with Europe's recovery tottering.

Hope of a rally on London's blue-chip index was killed off by weak trading in Wall Street and retreated by 19 points to 5,142.45. Confidence evaporated as the latest figures for gross domestic product in the eurozone missed expectations. As growth in Germany stopped and Italy slammed into reverse, growth across the 16-member bloc came in at just 0.1 per cent higher than the previous quarter.

One trader said: "Any revision here could drop the region back into recession." This only heaped fuel to the fears of Greece's debt situation.

Sentiment wasn't helped by a note from the uber-bearish Société Générale analyst Albert Edwards, who compared the Greek situation just weeks after the debt crisis in Dubai as similar to the Russian default and the blow-up of LTCM in 1998. "There will be more crises to follow Greece, both inside and outside of the eurozone," he said, adding that he thought any help given to Greece "merely delays the inevitable break-up of the eurozone".

The banking sector felt the knock-on effect. Worst off was Lloyds Banking Group, which fell 1.56p to 46.5p. This came on the same day it announced the plan to issue 3.1 million shares. The move will dilute the Government's stake from 43 per cent to 41 per cent next week.

It was overtaken in the afternoon by British Airways as the dispute with its unions became more acrimonious. The CWU accused the flagship carrier of "McCarthyism for the internet age" as it suspended staff who had made feisty remarks about fellow staff working during the strike on the social networking site Facebook. The ongoing uncertainty of the situation drove the share price spiralling down 8.4p to 195.5p to the foot of the FTSE.

The insurers were also on a downward slide once again. Aviva was the biggest hit as the talk of a possible approach for the company evaporated. Gossips had heard tell that two rivals were to break the company up between them, sending the shares up for two sessions. It ended the week still in one piece, but had taken a bit of a hit, giving up 7p to 359p.

As well as the profit-taking from the previous session's gains, such as with Rolls-Royce Group – which gave up 14p to 506.5p despite three brokers putting out supportive notes – the top tier was dragged further lower as support for the miners evaporated. The red lantern was at half-mast for the big metals producers after China's central bank announced it was to tighten monetary policy. The announcement that the state was to raise reserve requirements by 0.5 per cent at domestic banks raised fears of a fall in demand for commodities, dragging on the sector. Biggest sector faller on the day was Vedanta Resources, which gave up 61p to 2363p.

The prospect of next Monday's holiday in the US and a week off in China just added to the general malaise. With little corporate news to lend direction, the traders retreated to safety.

Top of a fairly anaemic list of risers was National Grid, which posted a 16p rise to 640p after support from Morgan Stanley, which said 2010 will be an important year for the group's operations in the US. A good deal on two rate plans it is negotiating "should lead to strong earnings growth," it said. The analysts added there could be an almost 15 per cent upside of earnings per share to 69.5p and 20 per cent upside to the 750p price target at its favourite UK utility.

The usual defensive suspects were there with the utilities, including big pharma, with GlaxoSmithKline up 17p to 1229p, while tobacco always has a good run, with British American Tobacco up 16.5p to 2157.5p.

After the dust had settled on the previous day's third quarter and pension announcements, BT Group recovered somewhat, rising 2.6p to 122.5p. It rose despite analysts at Citigroup and Nomura both cutting their price targets, although not to below the current share price levels, and both remained neutral on the stock.

Another company that suffered at the hands of the market on Thursday following a corporate update was Diageo. The shares were cheerier yesterday, despite analysts at Royal Bank of Scotland cutting the price target from 1150p to 120p. The maker of Guinness rose 12p to 1030p.

The FTSE 250 gave up 78.88 points to 9052.97. At the bottom was Ashtead Group, which suffered its second sharp drop in two weeks. The mid-tier equipment hire group closed down 4.1p to 77.45p. Profit-takers also waded in at BSS Group, the plumbing and heating company. The company gave up 7.3p to 270p after it announced a trading update during the previous session.

On the upside, HMV Group advanced 1.7p to 73.8p as Nomura resumed coverage of the stock with a "buy" rating and a target price of 120p. The broker reckons that the acquisition of MAMA Group hasn't yet been factored into its price.

On Aim, First Artist has sold its artist representation and wealth management units, and is in talks to sell off its football agency operation. The stock fell 2.25p to 21.75p.

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