Market Report: Footsie slides as US data sparks recovery fears

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Blue chips fell back below the 5,300-mark last night as negative data from across the Atlantic sparked worries about the strength of the recovery in the US economy.

The FTSE 100 lost 1.7 per cent or 91.58 points to 5,211.29, while the FTSE 250 fell by 51.71 points to 9,835.08 on news of a surprise jump in US jobless claims. Analysts had expected to hear of a decline in the number of Americans making new claims for unemployment benefits last week, but official figures revealed an increase of 12,000 to a nine-month high of 500,000. The mood turned a shade darker after a separate report showed that factory activity in the country's mid-Atlantic region had contracted for the first time since July last year. The Philadelphia Federal Reserve Bank said its business activity index had declined to minus 7.7 in August, compared to plus 5.1 in July, with a reading below zero indicating contraction in the region's manufacturing sector.

Turning to the day's movements, and water companies were pressured as traders switched out on the warning that, following a recent run of gains, the market had already priced in much of the good news on the sector.

United Utilities, for instance, fell by 17p to 572.5p after JP Morgan Cazenove turned cautious, highlighting the fact that the stock was already trading in line with its March 2012 target price. The broker also warned that consensus estimates were vulnerable to cuts owing to high interest costs, earnings dilution from asset disposals and higher property rates.

"On our analysis, the UK water companies are trading an on average premium to March 2011 regulated asset values of 9 per cent, which compares to a historic average from 2004 to date of 10 per cent," JP said, spurring profit-taking around United, which was cut to "neutral" from "overweight", and its peers. Pennon, which was lowered to "hold" from "buy" at Deutsche Bank, was 20.5p behind at 566p, while Northumbrian Water fell by 6.4p to 313.5p. Severn Trent was also held back, easing by 22p to 1,300p.

Retailers, boosted by news of a surprise jump in volumes over July, were strong during the first half of the session, but fell back as the wider market turned lower on the data from the US. Home Retail Group, for instance, went from a session high of 224.6p, up 4.8p, to 219.2p, down 0.6p, by the close. Marks & Spencer, which booked an intraday best of 345p, up 3.8p, was 3p weaker at 337.2p at the end of play.

Worries about the American economy also weighed on the mining sector, which fell back as the demand outlook turned darker. Anglo American, for instance, was 61p behind at 2,360p, while Xstrata lost 21p to 1,050p as traders lost interest in rumours of a possible bid from Glencore, the Swiss commodities trader.

In the oil and gas sector, BG proved the most resilient of the majors, losing just 6p to 1,030p, after a Royal Dutch Shell executive in Australia was reported as saying that the company may spend up to $50bn in the country over the next decade. The read-across supported BG, which has extensive gas operations in the country. In the wider sector, Shell was 49p lower at 1,740p, while BP fell 10.9p to 386.7p.

Elsewhere, Inmarsat, the mobile satellite group which stood out with strong gains on Wednesday, was the weakest of the blue chips last night. The stock fell by 5.1 per cent or 37p to 688p after UBS warned that while the recently announced plans to invest in new high frequency "Ka-band" satellites promised to pay off in the long term, the benefits may not be forthcoming for some time.

Further afield, ITV rose by 6.7 per cent or 3.55p to 55.95p as bid rumours made a comeback. An American suitor was said to be preparing an offer for the group, which was also rumoured to be the subject of stake-building by the NBC television network. Market watchers, though sceptical, were careful to acknowledge the possibility of deal activity, citing the recent uptick in transactions elsewhere.

On the downside, Hansen Transmissions, the wind turbine gearbox manufacturer, which was under pressure on Wednesday, continued to trade lower, shedding another 10.5 per cent or 6.8p to 58.2p as recent results from key client and leading wind turbine maker Vestas continued to weigh on the mood. The stock was also weighed down by some cautious comment from UBS, whose analysts said warnings from Vestas and Gamesa, another major Hansen customer, suggested that investors may be disappointed by the FTSE 250-listed group's second-quarter figures later this year. The outlook for 2011 may also prove uninspiring, the broker added, adopting a short-term "sell" rating on the stock.

Goldman Sachs boosted the recruiters after raising Michael Page, Hays and Robert Walters to "buy" in a sector round-up. "We expect these companies to benefit from the late cycle improvement specialist staffing markets, their developing market exposure and their lower reliance on mid-cycle GDP growth," the broker said, revising its target for Michael Page, which was 22.2p higher at 403p, to 495p from 375p; for Hays, which rose to 91.9p, up 1.7p, to 115p from 119p; and for Robert Walters, which was 7p stronger at 237p, to 295p from 264p.