Market Report: Investors suffering from Christmas indigestion

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The Independent Online

The seasonal goodwill that just lifted the FTSE 100 through the 6,000 point mark at close of trading on Christmas Eve failed to hold as (some) traders returned to work yesterday.

The index had opened in the black, following a solid session on Wall Street overnight, but it struggled to maintain that momentum, closing 12.56 points down at 5,996.3. Despite the muted performance, the top tier remains on target for the best December performance since 1993.

Ben Critchley, a sales trader at IG Index, said: "In a year that didn't promise much beyond uncertainty for business, there has been a run of better-than-expected results for several large and leading companies on both sides of the Atlantic, leading investors to back equities further than anticipated." He continued: "Before Friday, the FTSE hadn't closed above 6,000 since June 2008, and it will now be interesting to watch and see whether investors will want to take profits out of this latest surge, or dig in and set 6,000 as a base for further growth in 2011."

Banking analysts have been earning their keep with a series of predictions in the run-up to the new year, with most forecasting that the FTSE 100 will be higher by the end of 2011. Deutsche Bank believes the index could close as high as 6,880 in a year's time, with UBS's target set at 6,700. Less bullish was Nomura, which reckons 6,250 is more likely.

Yesterday, the mining behemoths were the stand-out performers off the back of commodity price rises. Silver closed at its highest price in 30 years, while copper hit record levels and gold put in a strong showing. The precious metal saw its biggest gain in seven weeks on Tuesday, helping African Barrick Gold to storm to the top of the blue chips as it closed up by 36.5p at 618.5p.

Close behind was Randgold Resources, which had tumbled to the foot of the index on Christmas Eve, marking one of the few stock performances driven by actual news on the day. In the sort of move that CJ Cregg in The West Wing once dubbed "taking out the trash", the company released a woeful update after the markets closed on Thursday night. The shares were lower, though not horrifically, on the news that fourth-quarter production would be damaged by political tensions in the Ivory Coast. Chief executive Mark Bristow said: "We knew that 2010 was going to be a challenging year and the fourth quarter is turning out to be even tougher than anticipated." While the company did not recover all of the Christmas crumble, it bounced back 180p yesterday to close at 5,445p.

The sector's strength was reflected on the second line as well. Hochschild Mining climbed on the day as it revealed a joint-venture agreement with International Minerals Corporation to develop the Inmaculada silver project in southern Peru. The stock closed 21p higher at 645p. The retailers, however, suffered from disappointing Boxing Day footfall figures, down by nearly a quarter on a year earlier. The worst sector performer on the top tier was Next. The clothing chain gave up its Christmas Eve gains to close 41p lower at 2006p.

The FTSE's wooden spoon yesterday went to Royal Bank of Scotland, as confidence in the sector rocked. Fears once more of the potential crisis facing the eurozone sent it lower by 0.91p, or 2.24 per cent, to 39.77p.

Another poor performer was Smith & Nephew, which sat at the bottom of the index during morning trading following disappointing news for the company from across the Atlantic. The US Food and Drug Administration gave warning of issues relating to the group's hip-replacement device after inspecting its Tuttlingen plant in Germany. While it rallied, the stock closed down by 9p at 677p.

Among the small caps, Fortune Oil was the pick, rising by 24 per cent to 12.5p. The group announced last week that it was to restructure its natural-gas business with the sale of its indirect 51 per cent equity interest in Henan Fortune Green Energy Development. Yesterday's rise took the stock to a more than 70 per cent rise for the month.

There were continued fears over JJB Sports, which gave up 0.27p, or 5 per cent, to close at 5.06p. Another with a Christmas Eve profit warning, the sportswear group had revealed that investors had backed a £31.5m fundraising to save the company that day. JJB has lost more than 80 per cent of its value in the past year but rose a fifth following its successful move to tap shareholders. Yet Arden pointed out last week the sum would be enough to keep JJB going only for a few months.

On the Alternative Investment Market, Desire Petroleum shares lost 29 per cent after the group said it hadn't yet found any oil in the Dawn/Jacinta prospect in the Falklands. This is more disappointment for the company which believed it had found oil at its Rachel prospect, only for the substance to turn out to be water. The shares closed down 17.75p at 42.5p yesterday.

On the upside of the growth market, Ithaca Energy, an oil and gas producer, said the second production well at Beatrice Alpha in the North Sea had more than doubled production. The shares rose 10 per cent to 170.5p.