Market Report: Regulation worries weigh on Vodafone

Investors were hanging up on Vodafone last night, as analysts urged caution over what the year ahead will bring for the telecommunications giant. Concerns over regulation and an increase in competition led Barclays Capital to reduce its advice on the mobile phone company to "equal weight" from "overweight".

The broker was downcast on the group's prospects for 2011, predicting that "the next 12 months will be tougher than many expect".

In a generally bearish note on the European telecommunications groups, Barclays said that regulation "remains a constant source of earnings pressure for the sector", and also warned of the effects of austerity measures.

Although its analysts did concede that "the US has scope to surprise on the upside" for Vodafone, they also pointed out that any benefit is largely factored into the group's share price, which closed at 171p, down 2.7p.

Overall, the FTSE 100 jumped up 36.69 points to 6,050.72 as the main economic event of the day – the successful bond auction in Portugal – boosted sentiment among investors. "A Portuguese bailout has been considered something of an inevitability for some time, but [yesterday's] strong showing may ease such fears for now," IG Index's Ben Critchley said.

Almost all of the miners finished the session stronger, as Deutsche Bank predicted a "bold 2011" for the sector and said that it expects "earnings to continue to expand and equity prices to move up accordingly". The broker's analysts kept their "buy" advice on Eurasian, and the group finished in pole position on the top-tier index after being driven up 47p to 1,125p.

Meanwhile, two of Deutsche Bank's top picks – Xstrata and Rio Tinto – added 25p to 1,535p and 96.5p to 4,542.5p respectively, with both assisted by an uptick in copper prices.

Tullow Oil managed to bank a small rise of 11p to 1,380p as Jefferies International speculated that its "takeover appeal" could increase. The broker initiated coverage on the oil group with a "buy" recommendation, saying it had "established itself in a class of its own through play-defining exploration success in Ghana and Uganda".

Nomura was also looking at potential merger and acquisition activity as it focused on the spirits industry. Commenting that "several opportunities are starting to emerge for possible acquisitions" for Diageo, the broker said that the company – which owns Gordon's gin, among other brands – "is now in a strong financial position to take advantage". Yet despite the group having its target price increased to 1,500p, it still shed 24p to close at 1,212p.

Also suffering was J Sainsbury, even though it revealed in its third-quarter update that the extreme weather in December actually led to it achieving a sales increase. The supermarket – which has just overtaken Asda to again become the UK's second-largest grocer – was driven back 8.4p to 382p as it failed to increase its profit forecast, while Tesco dropped 1.65p to 423.7p ahead of the release today of its trading statement on the festive period.

The leaderboard on the FTSE 250 was dominated by companies enjoying rises off the back of updates, with SuperGroup taking the top spot as it gained nearly 20 per cent. The clothing retailer's Christmas figures led it to advance 226p to 1,390p after it announced that its sales had jumped up 90 per cent compared to the same period last year.

Seymour Pierce said the numbers "add credibility to our view that SuperGroup can be developed into a major international brand", adding that the company still has a big opportunity "to grow sales in the UK through the development of the store network".

Moneysupermarket.com saw a more than respectable climb of 8.4p to 85.75p, as the trading comparison website said it expected its full-year earnings to come in towards the top end of predictions after an improvement in trading over the second half. Also doing well following the release of figures were Fenner, up 32p to 386.7p, and The Restaurant Group, up 18.8p to 293.4p.

Meanwhile Greggs ended the session 15.4p stronger at 465p as it announced a modest rise in its Christmas sales. The baker's revelation that it plans to open 80 new stores in 2011 led Ed Woolfitt from Galvan Research to say he "cannot see the shares as anything other than a solid buy for long-term growth".

Bucking the trend of the day was Barratt Developments, as the housebuilder dropped 2p to 92.9p following its trading statement, despite Arbuthnot raising its advice to "buy".

Henderson was 12.8p better off at 151p after it said that discussions which started in December had culminated in it agreeing to buy Gartmore – which was lifted up 12.4p to 103p – for £335m.

There was a good reaction among investors to the decision by Fortune Oil to splash the cash and spend $24m on a 35 per cent stake in the iron ore miner Bounty Resources Armenia. The small-cap group, which was boosted up 0.5p to 11p, has the option to take control of half of the company for an extra $16m.

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