Market Report: Glaxo takes a hit as trading finally gets going

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The Independent Online

The drugs giant Glaxo-SmithKline was among the losers in an unexpectedly light session in London yesterday.

Technical errors kept traders from transacting business on the London Stock Exchange for almost seven hours. A sell note from Goldman Sachs ensured GSK's place as one of only two stocks on the FTSE 100 loser board, down 20.5p at 1249.5p, when trading resumed at 4pm.

"We believe that GSK's recent strong share price rally is due more to the macro outlook and the market's positive perception of new CEO Andrew Witty rather than any change in fundamentals," the broker said.

"Given this, and no obvious near-term catalysts, we believe that shares are at risk in any market rally."

In other news, GSK announced the departure of its North American head Chris Viehbacher, who was overlooked in favour of Mr Witty after Jean Pierre Garnier's departure in May.

Overall, the FTSE 100 closed up 205.6 points at 5,446.3 and the FTSE 250 was up 303.2 points at 9,270. Cheered by the weekend bail-out of Fannie Mae and Freddie Mac, the indices rallied in the first hours of trading, before errors at the exchange led to a suspension of trading from 9:15am to 4pm. The outage frustrated traders, many of whom had been looking forward to what was pegged to be one of the busiest days of the year.

"We're annoyed. We were gearing up for some heavy buying now that the Fannie Mae/Freddie Mac situation has been resolved and instead we are, well, just sitting here waiting for the LSE to start up again," said one trader, waiting for the system to re-start in the afternoon.

At the close, others cautioned against reading too much into the day's movements. David Jones, chief market strategist at IG Index, said: "It is difficult to say too much about UK stocks today as trading has been suspended since he early morning. The true market feeling on how the US government's intervention in the mortgage markets affects the economic landscape should become clearer as the week progresses – technology permitting."

On the FTSE 100, financial stocks gained the most in the few hours of trading. The sector was reassured by the news from the US and Barclays advanced to 355p, up almost 12 per cent or 37.75p. HBOS gained 11.43 per cent, or 31.5p, to 307p and Royal Bank of Scotland was up 11.26 per cent, or 24.75p, at 244.5p.

Some analysts remained cautious, however. Merrill Lynch said that once the relief rally fades, "we expect to see greater differentiation between those banks which merely face the cyclical headwinds and those which also face structural changes to their business models". Credit Suisse, which said it would be selling to the Fannie Mae/ Freddie Mac inspired rally, pointed out that the problems in the summer were not US-related anyway. "The main concern has been the realisation that Europe and the UK are close to recession," the broker said.

Elsewhere, ITV, which is expected to vacate its berth on the benchmark index in the upcoming reshuffle, was strong after it emerged that a former chief executive, Charles Allen, had been appointed to advise Goldman Sachs Capital Partners. As part of his new job, Mr Allen will take a place on the board of Goldman's chief media investment, Endemol, the television production group which has often been pegged as a bidder for ITV's production business. The news sparked talk about a possible move on ITV once it leaves the FTSE 250 and took the stock up 4.27 per cent to 44p.

On the FTSE 250, the relief rally carried consumer credit specialist Cattles to first place on the leaderboard, up 13.64 per cent, or 15p, at 125p.

Housing stocks were also firm, helped – beside the news from the America – by a series of upgrades from Goldman Sachs.

Bovis Homes, which was moved to "neutral" from "sell" at Goldman, gained 6.27 per cent to 474.75p. Barratt Developments, whose target price was increased from 113p to 136p, was the strongest, up 12.76 per cent to 165.75p, while Taylor Wimpey, whose target price was increased from 52p to 58p, advanced 11.26 per cent to 61.75p.

On the downside, Micro Focus International, down 3.7 per cent at 280p, took the wooden spoon after UBS placed 25 million of the shares held by funds managed by Golden Gate Private Equity. At the discounted price of 260p apiece, the placing raised gross proceeds of £65m. Golden Gate remains a shareholder with around 22.5 per cent of the company.

Among smaller companies, Newfound lost 22.45 per cent to 9.5p after it said its Humber Valley Resort subsidiary had filed for protection against creditors under the Canadian Companies Creditors Arrangement Act. Newfound said the action was taken after a review determined that the Humber Valley resort was "not economically viable".

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