Market Report: Fresnillo rises on prospect of MSCI boost

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The Independent Online

Fresnillo and Randgold Resources, the two FTSE 100-listed precious metals miners, stood out in an otherwise quiet session yesterday, trading higher on news that they were set to enter a key benchmark index.

MSCI, whose indices are widely followed by fund managers, released the results of its semi-annual review overnight, announcing that globally, there will be 40 additions and 61 deletions, with six additions and 29 deletions in Europe.

Both Fresnillo, up more than 11 per cent, or 66p, at 631p, and Randgold, up more than 3 per cent, or 138p, at 3,977p, were added, putting them in line for some heavy buying as fund managers who follow the MSCI indices get their weightings in order.

Trackers will have to buy an estimated 3.6 million Randgold shares, which equates to about 7.8 days average trading volume, and 8.4 million Fresnillo shares, which works out to about 8.5 days average trading volume before the changes are effective at the end of this month, according to Goldman Sachs.

Overall, the FTSE 100 fell to 4,362.58, down 31.21 points, while the junior FTSE 250 index gained 57.58 points to 7,428.77.

The blue-chip index, which was broadly flat during most of the morning and early afternoon trading, relaxed following the release of official data showing that US workers filing new claims for jobless benefits had climbed by more than expected last week, rising by 32,000 to a seasonally adjusted figure of 637,000, compared to market forecasts of about 610,000.

On the FTSE 100, Rio Tinto, 91p ahead at 2594p, was in focus, with the market rumour mill mooting the possibility of another offer from BHP Billiton, the rival miner which last year abandoned a planned takeover offer for the company.

The key issue, according to traders, is Rio's controversial fund raising deal with Chinalco. With the Rio share price well above where it was when the deal was first announced, the market has been abuzz with talk about whether Rio might bow to shareholder pressure, abandoning the Chinese deal and opting for a rights issue instead.

UBS analysts based in Australia gave some credence to the speculators last night, suggesting in a new note to clients that "BHP could propose to assist in underwriting a substantial rights offering for Rio, and in exchange propose an iron ore joint venture in the Pilbara [region in Western Australia]". At close, BHP was broadly unchanged, firming up by 2p to 1392p.

Elsewhere, the banking sector recovered, with Barclays, which said it was set to book an £800m gain on its bond swap offer, boosting its capital cushion, climbing to 253p, up more than 4 per cent, or 10.2p.

In the wider sector, Standard Chartered advanced to 1,197p, up 8.1 per cent, or 90p, and the Royal Bank of Scotland rose to 39.5p, up 4 per cent, or 1.5p, as investors returned to capitalise on recent share price falls.

Friends Provident, up 5.8 per cent, or 3.9p, at 71.6p, was briefly suspended, according to traders, following a large trade, suspected to be a "fat finger" or a mistaken trade, which was said to be behind a sudden jump in the share price at one point in the session.

On the second tier, the inter-dealer broker Tullett Prebon retreated to 278p, down 12.3 per cent, or 39p, after a strong revenue update was overshadowed by news of US government plans to regulate the over-the-counter derivatives market.

On the upside, Barratt Developments climbed to 144.25p, up almost 6 per cent, or 8p, thanks to UBS, which moved its recommendation on the stock to "buy" from "neutral" after a modelling scenario in which the house builder launches a £400m equity issue.

"[Barratt Developments] renegotiated covenants refinanced in July 2008, and continues to operate within covenants," the broker said,

"With cash generation the core focus, [the company] has time to decide whether to raise equity to reduce £1.2bn debt to buy land at the bottom, or shrink volumes to maintain an appropriate land bank. We think the former is more likely."

ITV was down, losing 4.6 per cent, or 1.5p, to 31p after posting an interim management statement, saying that net television advertising revenues were expected to be down 16 per cent over the first half of the year.

Collins Stewart undermined sentiment around Soco International, the oil and gas explorer and producer, which retreated to 1,246p, down 4.5 per cent, or 59p, after the broker moved its recomendation to "sell" from "hold" on grounds of valuation.

Among smaller companies, Leed Petroleum, which earlier this week said it had been unable to contact a third party behind a letter expressing interest in Leed shares, announced the termination of talks following a discussion with the unnamed suitor. The news weakened the stock, which slipped to 21p, down 2.3 per cent, or 0.5p.

St Modwen, the FTSE Small Cap-listed property company, fell to 175p, down 8.5 per cent, or 16.1p, after unveiling a £107.4m placing and open offer at 135p apiece, as it seeks to reduce borrowings.

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