Market Report: Housebuilders gain on hopes of rate cut

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The Independent Online

The outlook for interest rates and some positive broker comment boosted Bellway, the housebuilder, which gained more than 11 per cent, or 56p, to 542p yesterday.

Its peer Persimmon was also strong, gaining 8.27 per cent, or 20.75p, to 271.75p, as investors anticipated an interest rate reduction from the Bank of England next week. Supportive comments from Cazenove, which upgraded both stocks to "outperform" from "in-line", also contributed to the rally.

Anticipating better market conditions as interest rates fall, housing becomes more affordable and the Government uses its newfound influence as a shareholder in the country's major lenders to push for increased mortgage lending, the broker said it was time to look to invest in the sector. "We would avoid financial gearing, and look for those companies most capable of continuing to pay dividends and where the operational and financial structure remains in place to benefit from the inevitable upturn in volumes," said Cazenove, homing in on Persimmon and Bellway as the best candidates.

The wider sector also rallied as investors looked forward to a rate cut. Market sources said there was some evidence of a bear squeeze around Barratt Developments, which gained 17.97 per cent, or 9.75p, to 64p. Berkeley was up 7.22 per cent, or 49.5p, at 735p and Redrow gained 6.49 per cent, or 11.25p, to 184.5p.

Overall, the FTSE 100 held on to the previous day's gains, closing up 49.11 points at 4,291.65, while the FTSE 250 gained 234.67 points to 6,223.78. Like the housing sector, investor sentiment in the wider market was driven by hopes of a reduction in interest rates next week. A firm start on Wall Street, where investors expressed relief at official data indicating that the US economy fared better than expected in the third quarter, also helped London remain clear of the red.

Buoyant commodity prices boosted resource-related issues, which domin-ated the FTSE 100 leaderboard des-pite a dip in oil prices as the session came to a close. Cairn Energy, the India-focused oil and gas explorer and producer, was up 15.16 per cent, or 204p, at 1550p after Cairn India, the Bombay-listed business in which CNE owns a 654 per cent stake, issued a positive third-quarter update. The mining group Vedanta Resources was up 15.75 per cent, or 105.5p, at 775.5p, while Kazakhmys, which issued an in-line production update, was up 12.2 per cent, or 32.75p, at 301.25p. Eurasian Natural Resources Corporation was up 0.25p at 295p after it emerged that Kazakhmys had taken its stake in the company to 26 per cent.

The oil services groups Amec, was up 14.51 per cent, or 62.5p, at 493.25p; Petrofac, was up 13.44 per cent, or 49.75p, at 420p; Wood Group was up 11.77 per cent, or 24.25p, at 230.25p.

Elsewhere, the insurer Admiral fell back to 900p, down 17.43 per cent, or 190p, after investors banked profits from recent gains. But Standard Life rose 13p to 213p despite a disappointing sales update: the stock avoided a fall after management said it was comfortable with its capital position.

RSA Insurance was down, losing 2.48 per cent, or 3.3p, to 130p, after RBS switched its stance on the stock to "sell" from "hold". Highlighting the company's exposure to the Baltic region and Latin America, the broker said: "Economies, currencies and markets in these regions have taken a serious beating, and some banking systems and economies are not strong enough to deal with the credit crunch or its recessionary aftermath.

"The credit spreads on some of the sovereign and corporate debts have widened in anticipation of a material rise in defaults. This is likely to reduce investment returns and slow down the rate of growth in premiums."

On the second tier, investors waded back into consumer issues, taking Kesa Electricals to 80p, up 15.52 per cent, or 10.75p, on the belief that the Bank of England was gearing up to reduce interest rates next week. Punch Taverns was up 13.73 per cent, or 17.75p, at 147p after Morgan Stanley said the refinancing risk at the pubs group had been "significantly" reduced following recent steps by the company. Highlighting the dividend cut, securitised note repurchases, convertible bond repurchase and the extension of the loan facility, the broker said: "There appears to be a minimum, if any, funding gap, we estimate."

Among smaller companies, a set of positive interim results boosted Probability, the mobile gambling specialist that was up 21.62 per cent, or 8p, at 45p. Mountfield, the construction and property support services group, shrugged off the market turmoil to join AIM. 169,558,520 shares were issued at 10p apiece and at close, the stock was up 2.5p at 12.5p.