Retailers were in focus last night, with Debenhams gaining ground as analysts looked ahead to the key Christmas trading period.
Morgan Stanley said of the retail sector: "All the signs so far suggest that Christmas is shaping up well." Not only do shopkeepers face very soft comparatives, as trading through October, November and the first half of December 2008 was very poor, but they are also better placed because they have brought their inventories under tighter control. Last year, many retailers entered the Christmas season with too much stock, "having been surprised by the rapid deterioration in the consumer environment".
High-street stores also stand to benefit from plans to raise VAT back to 17.5 per cent in January. This should boost sales, particularly of big-ticket items, as shoppers make the most of the current 15 per cent rate.
Moreover, Boxing Day is on a Saturday this year. "Most retailers will, therefore, start their post-Christmas sales a dayearlier than normal, and with Monday, 28 December also being a bank holiday, the footfall during the first three days of the sale period is likely to be well up on last year," said Morgan Stanley, raising the prospect of widespread upgrades to consensus forecasts in January.
For investors who want to "play" the retail sector during the holidays, Morgan recommended Marks & Spencer, and said those who wanted to spread their risks should also consider Kesa Electricals, Next and Debenhams.
Debenhams was also supported by Bank of America-Merrill Lynch, which revised its stance on the stock to "buy", prompting the share price to rise by 2 per cent, or 1.6p, to 81.6p. M&S and Kesa were broadly unchanged. The former rose by 0.6p to 400.1p and the latter easing by 0.4p to 154.8p. Next was also slightly weaker, closing 18p lower at 1995p.
"The Debenhams share price is at the same level as when we reinstated coverage three months ago," BofA-Merrill said. "This is despite our earnings forecasts being 7 per cent higher and the UK non-food retail sector up [around] 12 per cent since then."
In the wider retail space, JJB Sports was 11.3 per cent, or 3.25p, behind at 25.5p, with traders citing talk of a placing of about 65 million shares. The rumours was confirmed in the afternoon, with JD Sports Fashion saying it had sold its shares in JJB for 25p each. Like JJB, JD was weaker and closed down 27p at 483p.
Overall, it was a rocky session. Equities strengthened after the Chancellor delivered his pre-Budget report, with traders welcoming the lack of nasty surprises. The relief was shortlived, however, as the bears moved in after Standard & Poor's revised its outlook on Spain to "negative".
The news knocked confidence across the market and drove the FTSE 100 into negative territory. Boosted by early firmness on Wall Street, the index pared losses in the final hours of trading, closing at 5,203.89, down 19.24 points. The mid-cap FTSE 250 index was 1.2 per cent or 112.27 points weaker at 8,919.49.
Standard Chartered, which said any losses stemming from the situation in Dubai were unlikely to be material, managed to overcome the downdraft, rising by 1.7 per cent, or 25p, to 1462p as traders breathed a sigh of relief. The wider sector was mixed after Mr Darling unveiled a new tax on banking bonuses.
Barclays fell by 3.3 per cent, or 9.4p, to 278.1p and the Royal Bank of Scotland eased by 0.125p to 30.325p. HSBC stood firm, rising 3.9p to 699p. Lloyds Banking Group was 0.92p ahead at 54.69p after Citigroup set an ex-rights target price of 69p.
The broker retained its "buy" stance on Lloyds, saying: "The stock could bounce strongly once the rump placement completes on 14 December, or possibly sooner."
Elsewhere, parts of the mining sector strengthened as the US dollar weakened, boosting metals prices. Xstrata was among the strongest of the lot, rising almost 2 per cent, or 20p, to 1054p, while Rio Tinto gained 1.7 per cent, or 53p, to 3140p. Some stocks were left behind, however, with Fresnillo retreating more than 3 per cent, or 27p, to 793p and Vedanta Resources losing 1.5 per cent, or 36p, to 2330p. Lonmin was 22p weaker at 1733p, while BHP Billiton was broadly unchanged at 1850.5p, down 6p.
On the second tier, the gaming and leisure operator Rank Group touched a session high of 83p, an increase of more than 5 per cent, after the Chancellor announced a cut in bingo tax.
Rank said the reduction in duty on bingo revenues from 22 per cent to 20 per cent, which takes effect the time of the full Budget in April, would boost full-year operating profits at its Mecca Bingo clubs by about £2.5m. Its shares duly closed 0.8p higher at 79.8p.
On the downside, housebuilders' shares were hit by a round of profit-taking, with traders blaming the future uncertainty in the housing market.
The sell-off left Bellway 5.4 per cent, or 40.5p, lower at 706p, while Bovis Homes fell by almost 5 per cent, or 19p, to 372p. Barratt Developments, which shed 2.8 per cent, or 3.2p, to close at 111p, and Taylor Wimpey, which fell by 2.5 per cent, or 0.86p, to 34.15p, were also held back last night.