Market Report: Reason to reconsider the Smith & Nephew story

Bargain-hunters moved into Smith & Nephew yesterday after analysts called on investors to reconsider the growth prospects for Europe's biggest manufacturer of artificial hips and knees. S&N shares haven't had the healthiest of years so far, falling by around 15 per cent since January. Results earlier this month did little to warm sentiment, with the stock easing in the hours after the company revealed lower trading profits for the third quarter.

But yesterday, the analysts at Exane BNP Paribas said investors should be more upbeat about firm's prospects. "Many investors doubt S&N can deliver new savings after the 2007-10 earnings improvement programme, but we are more optimistic and would play the better earnings momentum, thanks to the new $150m savings plan," they said, upgrading the stock, which gained 14.5p to end the session at 572.5p, to "outperform".

Exane added that the orthopedics arm should also see continued growth, as booming emerging markets offset weakness in the US and Europe. "It is time to reconsider the story," its analysts said.

Overall, the market continued to tumble. Weekend news of the technocratic Mario Monti's appointment as Italy's Prime Minister was overshadowed by continued concern about Rome's borrowing costs. Driving the nervousness early on Monday was an Italian bond auction, which saw Rome's yields remain well above the 6 per cent mark.

However, below the figures seen last week, the cost was high enough to fan concern. Later in the day, the jitters were underpinned by Spanish bond yields, which moved beyond the 6 per cent mark. The result was that, despite progress on the political front in Italy and Greece, the FTSE 100 remained under water, easing by 26.34 points to 5,519.04. The FTSE 250 was 41.54 points behind at 10,347.76.

The worries about Europe led to further weakness in parts of the banking sector. Adding pressure on Barclays, down 4.85p at 174.05p, was some negative commentary from Goldman Sachs, whose analysts lowered the lender to "sell", naming the bank as the one most exposed to the reforms put forward by the Independent Commission on Banking.

The broker was more positive on HSBC, which it named as "a key holding in the current environment", helping the stock notch up a broadly flat performance, up 1.4p at 504.7p.

On the upside, the telecoms group Vodafone was 2.65p better off at 182.7p after HSBC analysts provided some support, naming the stock as one of its top picks in the current, uncertain environment.

"We expect to see increased interest in perceived safe havens as the crisis unfolds," they said, adding that, of the various options, "our highest conviction safe havens are telecoms and energy. Valuations are attractive, large international funds are underweight and earnings are proving to be resilient," they explained.

Back on the downside, the mining sector was held back, with the FTSE 350 mining index down more than 1 per cent. On the FTSE 100, the India-focused mining group Vedanta Resources took the wooden spoon, falling back by 3.6 per cent or 42p to 1,120p. The commodities trader Glencore was 11.5p worse off at 428.5p, while Kazakhmys was 20p behind at 911.5p as the euro crisis, and accompanying concerns about global growth, weighed on sentiment around mining equities.

Further afield, sharp, sudden rallies often give way to swift, bruising slumps – and so it was for Premier Foods, the FTSE 250-listed food producer which fell back last night after booking a string of eye-catching gains last week.

The rally was pinned on short-sellers rushing to close their downside bets after the company announced an agreement with lenders to defer an upcoming covenant test. But the short closing, as the phenomenon is known in market parlance, seemed to have run its course, with Premier losing more than 10 per cent or 0.7p to 5.74p yesterday. Adding to the pressure, UBS analysts lowered the stock to "sell" from "neutral", with a revised 2p target price, against 21p previously.

Elsewhere, underperforming the wider sector, the Finnish miner Talvivaara fell by nearly 5 per cent or 10.5p to 205.5p yesterday. The decline came against the backdrop of an investigation by Finnish police, which is looking into whether the miner had fallen foul of the law in discharging waste water with high levels of impurities into lakes near its mine.

But speculation in the local press about an investigation by the environmental permitting authority are wide off the mark, according to the company. The authority – the Kainuu Centre for Economy, Transport and Environment – "examined a complaint submitted locally and resolved on 4 October that there were no grounds for such measures to be taken," Talvivaara said in a statement.