Market Report: LSE shares slide 5 per cent on volumes warning

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The Independent Online

A warning on volumes unsettled London Stock Exchange, which lagged behind despite strong gains for the broader market last night.

The bourse's share price eased to 480p, down 5.1 per cent or 26p, after Credit Suisse said that, given the fall in the number of shares changing hands across European stock markets, the value traded on the LSE's UK stocks may decline by more than 60 per cent this month.

For the coming 12 months, the broker estimates a 30 per cent slump in the value traded on LSE's UK order book. "We continue to believe that market expectations do not fully discount the scope for lower listings act-ivity, lower trading volumes and a decline in the number of real time terminals," analyst R Ghose said, highlighting the downside risks.

The assessment came as Turquoise, the rival trading platform backed by leading investment banks includ-ing Goldman Sachs, UBS and Credit Suisse, said it was going to offer higher rebates from the beginning of next month, which also undermined sentiment around the LSE.

Overall, the market rebounded, with the FTSE 100 advancing to 4,209.01, up 156.54 points, thanks to a shift in sentiment in the banking sector, the source of much of the losses in recent sessions. The mid-cap FTSE 250 index also traded up, gaining 168.09 points to 6256.22.

Barclays was the strongest among the blue chips, surging 73.2 per cent, or 37.5p, to 88.7p, after the chairman and chief executive penned an open letter to shareholders, saying that the bank remained profitable and well funded despite £8bn in credit market writedowns. The news proved reassuring, as traders had been concerned about the impact of writedowns on profits and the bank's capital base.

Bruce Packard, banking analyst at Evolution Securities, was unmoved, sticking to his reduce recommendation and saying: "We would like to know how it has avoided the losses reported by others."

He added: "Certainly, buying a sub-prime lender [EquiFirst] and bidding for ABN Amro in 2008, and then buying a Russian bank [Expobank] in the first half of 2008 do not seem to be the actions of a bank 'battening down the hatches' in preparation of a 50-year storm."

Mr Packard was more confident about HSBC, which gained 4.95 per cent, or 25.5p, to 541p.

"We expect the bank to maintain its dividend at 87 cents through 2009, but believe the market has already factored a 50 per cent dividend cut into the share price," he said, adding that a forced capital raising was unnecessary and unlikely.

Lloyds Banking Group – the comp-any formed after the merger of Lloyds TSB and HBOS – was also strong, recovering to 65.2p, up 32.3 per cent or 15.9p, despite reports that it may convert its government preference shares into ordinary shares. If it does move in that direction, the Treasury may end up owning more than 50 per cent of the group.

Elsewhere, Hammerson retreated to 398p, down 1.6 per cent or 6.5p, after HSBC analysts said that UK real estate investment trusts were "powerless in the face of the onslaught of the record peak-to-trough fall in capital values that we forecast at 50 per cent for prime commercial property".

The surge in the market shielded Xstrata, up 6.0 per cent, or 40.5p, at 720.5p, from speculation that Glencore may be selling its stake and from a warning on earnings from Citigroup.

Moving the stock to "sell", the broker said that under its new commodity price forecasts, the Anglo-Swiss mining group "only just breaks even" this year and next.

"The company is likely to bear the full brunt of the economic slowdown and lower commodity prices as its cost base is on average higher than its diversified peers," Citi said, reducing its earnings forecast for 2009 and 2010 by around 98 per cent.

Cattles was the weakest on the FTSE 250, shedding 27.8 per cent, or 5p, to 13p after withdrawing its application for a banking licence. Investors had been betting that a licence would provide some respite for the group, whose stock has lost more than 90 per cent of its value over the past 12 months.

Wellstream was lodged at the other end of the index, gaining 19.4 per cent, or 75p, to 461.25p, as the oil services sector perked up after Petrobras, the Brazilian oil producer, ann-ounced plans to increase the value of its five-year investment plan by 55 per cent to $174bn.

The housebuilder Redrow also traded up, gaining 8.9 per cent, or 12.5p, to 153p amid speculation of possible stake-building by the shareholder Toscafund.

Among smaller companies, International Ferro Metals eased to 15p, down 11.8 per cent or 2p, after the company said it does not expect to report a pre-tax profit for the six months to the end of December. Falling ferrochrome prices have depressed IFR's share price, which has slumped since hitting a peak above 165p in 2008.