Speculation suggested that Centrica was considering an offer for the rival energy group and owner of Britain's largest coal-fired power station. The two companies have been linked in takeover talks before, and last night rumours suggested that if Centrica failed to get a bite out of British Energy, it may refocus its efforts on acquiring Drax. The talk also mooted the possibility of similar interest from the other bidders vying for British Energy.
Centrica was up 2.25p to 295.5p while British Energy was down 1p to 753p.
Overall, the FTSE 100 was down 32.9, or 0.5 per cent, at 6,050.7. The London benchmark was hit by weakness across the mining, oil, banking and housing sectors, and by volatility on Wall Street, where investors digested a series of economic indicators.
Weekly jobless claims data from the US Labour Department came in better than expected, but, according to the US Commerce Department, sales of new homes plunged to their lowest level in more than a decade in March. At a seasonally adjusted annual pace of 526,000 units, the figures were well below market expectations, and 36.6 per cent below the March 2007 estimate of 830,000 units.
The FTSE 250 was also weak, shedding 113.3, or 1.1 per cent, to 9,974.4.
On the FTSE 100, as commodities prices came off earlier highs, miners and oil companies veered off the rally path. Eurasian Natural Resources Corporation was hit the hardest after ABN Amro revised its rating on the stock. "Despite a notable 60 per cent surge in the share price over the past month or so and the stock being one of our top picks for 2008, we are downgrading ENRC to a 'hold' [from a 'buy'] rating in the short term until we get clarity on export duties [in Kazakhstan] and intentions on Kazakhmys," the broker said, helping the shares slump 110p to 1,310p, leaving it at first place on the FTSE 100 loser board.
Other miners were also weak, including Antofagasta, which lost 42.5p to 808.5p, Anglo American, which was down 100p at 3,408p, and Xstrata, which lost 121p to 3,980p.
Among oil companies, Tullow Oil shed 16.5p to 745p and Cairn Energy lost 142p to 3,001p.
In the banking sector, Barclays was weak after publishing an AGM statement. In reaction, Collins Stewart downgraded the stock to "sell" from "buy". "The statement indicates that the run-rate of profits in [January] and [February] was flat [year-on-year], but that March was only 'profitable'," the broker said. "A full trading [statement] is due on 15 May and we cannot preclude the possibility of a rights issue. Assuming similar metrics to [Royal Bank of Scotland's] recent writedowns would imply £6.2bn of writedowns at Barclays."
Barclays fell 0.5p to 455.25p. Royal Bank of Scotland lost 4.25p to 340.75p and HBOS was 11p weaker at 489p.
Defence and aerospace stocks, on the other hand, were strong thanks to their US peers, many of whom have published positive earnings reports in recent days. Figures from Boeing, General Dynamics, Goodrich Corporation and Raytheon cheered investors. As a result, BAE Systems added 9.5p to 481.75p and Rolls-Royce rose 6.5p to 436p.
On the FTSE 250, Barratt Developments lost 36.75p to 294.25p after FTSE-100 listed peer Persimmon – off 41.5p at 608.5p – said the housing market was likely to become "more challenging". Barratt was also hit by rights-issue rumours. The company refused to comment on the speculation.
Mark Priest, senior trader at TradIndex said he expected the sell-off in the housing sector to "continue for the foreseeable future". He said: "We've had nothing but bad news from the housing market for months now, and, frankly, it's only going to get worse.
"Rights issues appear to be the only way that companies can raise money in the current conditions, but shareholders aren't too happy about that."
Taylor Wimpey was down 8p at 137.5p while Bellway shed 25p to 733.5p.
Bad broker sentiment hit Trinity Mirror, which lost 6p to 260.75p. Goldman Sachs cut its target price for the stock to 273p from 334p, highlighting "compelling downside opportunities". The broker said: "We believe Trinity's struggling national and regional franchises are likely to face further cyclical pressure than consensus suggests and reiterate our 'sell' rating. We would highlight [Trinity] as being exposed to the UK market with insufficient risk prices in current levels."
On AIM, Pursuit Dynamics was down as market rumours suggested the company had lost certain contracts, which in turn had impacted revenues. The talk did not identify the contracts, or their value, but was enough to dampen sentiment around the stock. Pursuit fell 15.5p to 243.5p.
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