Market Report: Miners knocked back by hunt for profits

The mining sector was on the back foot last night, with Vedanta Resources sliding to the bottom of the benchmark index as investors moved to secure profits.

Reports from China, where the State Council, or cabinet, said the global financial crisis was still impacting the country's economy, undermined sentiment, sparking a sell-off in leading stocks. The cabinet also said a recovery had not yet taken root in the Chinese economy, which is a key consumer of commodities.

The profit-taking left Vedanta 8 per cent or 137p weaker at 1,582p, while Xstrata retreated to 728p, down 6.4 per cent or 50p. Anglo American fell to 1,785p, down 6 per cent or 113p, and Rio Tinto eased to 2,912p, down 4.6 per cent or 141p.

Overall, the FTSE 100 fell to 4,383.42, down 2.1 per cent or 93.6 points, while the FTSE 250 relaxed to 7,688.19, down 1.1 per cent or 83.87 points. Besides the miners, the benchmark was hit as a number of stocks went ex-dividend, including National Grid, which was 6.5 per cent or 39p behind at 561p, and WPP, which was 5.2 per cent or 23.7p behind at 429.75p.

Morrisons was firm, thanks to Cazenove, which switched its stance on the supermarkets sector to "neutral" from "underweight", telling clients that profitability was likely to remain intact even as inflation eases. The supermarket group, which closed at 247.5p, up 1.4 per cent or 3.5p, was also supported by Seymour Pierce, which upgraded its recommendation to "buy" from "hold".

"The company is still outperforming its peers in terms of like-for-like growth, will benefit from consumers trading up compared with the previous year, eating in more, and from the trend of stay-at-home holidays during the summer," the broker said.

Also on the upside, Smith & Nephew gained 2.1 per cent or 9.75p to 475p after Goldman Sachs raised its target price for the stock to 610p from 590p in a review of the European medical devices sector.

On the downside, Pearson was 1.5 per cent or 9.5p behind at 647p, thanks to RBS, which reduced its 2010 earnings per share forecast by 8 per cent to reflect the recent strength in sterling. The broker also reduced its target price for the stock, to 560p from 590p.

"Pearson's assets are late cycle, the valuation looks full, and the balance sheet is, in our view, more geared than it appears (given operating lease expenses), meaning that any acquisitions may required an equity issue," the broker said, keeping the stock at "sell".

In the banking sector, Barclays lost another 5 per cent or 13.7p to 259.75p as it emerged that Temasek, the Singaporean state-backed investment fund, had offloaded its stake in the business earlier this year. HSBC was 1 per cent or 5.5p behind at 529.5p, even as the Saudi Arabian shareholder Saad Group denied market rumours that it was planning to sell its stake in the bank.

Elsewhere, investors took profits in staffing companies, with both Michael Page, down almost 3 per cent or 7.75p at 255.75p, and Hays, down 2.3 per cent or 2p at 85p, easing despite some supportive words from Morgan Stanley.

"Professional staffing and [permanent] recruitment have strong structural growth potential, to which Page and Hays have greatest exposure," the broker said, adding: "Recent underperformance leaves these stocks with much less demanding valuations than generalist peers and creates a good entry opportunity."

At the other end of the FTSE 250, Intermediate Capital climbed to 588p, up almost 5 per cent or 28p, after Credit Suisse raised its target price for the stock to 700p from 300p, on account of the company's recent final results.

"In our view, the key focus of the [results] was credit quality. The [full year] impairment charge was significantly worse than our forecast and we believe market expectations," the broker said, adding: "However, management strongly put across the message in the results release and in the investor presentation that they have attempted to tackle the impairment issue in [the full-year period covered by results], applying conservative provisioning policies, and asserting that they continue to seek recoveries on these assets."

De La Rue climbed to 873p, up 4.2 per cent or 35.5p. The banknote printer gained ground after Panmure Gordon said the recent underperformance in the stock was "unjustified", arguing that the company was a "financially solid, cash generating operation with excellent market share and industry reputation".

"Visibility remains unchanged, and while there may have been good reasons to switch into stocks with a lower rating, we believe these differentials have now narrowed," the broker said, upping its rating to "buy" from "hold".

Among smaller companies, SIG, the construction materials group, was 2.7 per cent or 3.25p firmer at 123p, after Goldman Sachs issued a "buy" note, telling clients that although the trading environment in the group's end markets was likely to remain difficult for the remainder of the year, it was "well placed to benefit from the increasing demand for insulation products to improve energy efficiency in buildings over the medium term".